Comparative Study on Investment Policy of Everest Bank

Limited and Bank of Kathmandu Limited

A Thesis

Submitted by:
GUNJA KUMARI SHAH
Nepal Commerce Campus
Campus Roll No.: 103/066
T.U. Regd. No. 7-2-441-46-2006
Exam Roll No:-250467/2068

Submitted To:
Office of the Dean
Faculty of Management
Tribhuvan University

In the partial fulfillment of the requirements for the Degree of

Master of Business Studies (MBS)

Kathmandu, Nepal
December, 2013
 VIVA- VOCE SHET

We have conducted the VIVA-VOCE Examination of the Thesis

Presented by:

GUNJA KUMARI SHAH

Entitled

Comparative Study on Investments Policy of Everest Bank Limited and Bank of

Kathmandu Limited and found that the thesis to be an original work of the student and
written in accordance with the prescribed format. We recommend the thesis to be
accepted as partial fulfillment of the requirement for the degree of Masters of Business
Studies (MBS)

VIVA-VOCE COMMITTEE

Chairperson, (Research Committee):-……………………………………

Member (Thesis Advisor):-…………………………………………….

Member (External Expert):-……………………………………………..

Date:-………...........
 RECOMMENDATION

This is to certify that the thesis:

Submitted by

GUNJA KUMARI SHAH

Entitled

Comparative Study on Investments Policy of Everest Bank Limited and Bank

of Kathmandu Limited has been prepared as approval by this Department in the
prescribed format of Faculty of Management. This is forwarded for examination.

…………………………… …………………………. …. ……………….

(Mr. Susila Keshar Amatya) (Pro.Dr. Sushil Bhakta Mathema) (Jyoti Pandey)
Thesis Supervisor Head of Research Department Campus Chief

Date: ………………………..
 DECLARATION

I hereby declare that the thesis entitled “Comparative Study on Investment

Policy of Everest Bank and Bank of Kathmandu” submitted to office of the
Dean, Faculty of Management, T.U., is my original work done in the form of
partial fulfillment of the requirements for the Masters of Business Studies (MBS)
under the supervision of Associate professor Mr. Surendra Keshar Amatya of
Nepal Commerce campus, Tribhuvan University. All the herein are genuine to the
best of my knowledge and can be fully relied upon me.

GUNJA KUMARI SHAH

Campus Roll No: 103/066
Exam Roll No: 250467/2068
T.U. Regd. No: 7-2-441-46-2006

Date: December, 2013

 ACKNOWLEDGEMENTS

This piece of research is a Master’s Degree thesis especially prepared as partial

fulfillment of MBS course under Tribhuwan University of Nepal. This thesis work has
aimed to analyze “Comparative Study on Investment Policy of Everest Bank and
Bank of Kathmandu”. I would like to express our deep gratitude to my thesis advisor
Associate Professor Mr. Surendra Keshor Amatya, Nepal Commerce Campus for his
valuable guidance, suggestions and inspirational encouragement that enable me to
complete this in time. He has also guided me while collecting information through
concern department and office. I am always in debts to Pro.Dr. Sushil Bhakta
Mathema, Head of Research Department of Nepal Commerce Campus for his inspiration
to select this topic to fulfill the partial requirements of Master of Business Studies.

I am always indebted to Mr. Gopal Prasad, Deputy Governor of NRB, Mr. Mahesh
Bhattrai, Executive Director, Corporate Planning Department, NRB, Mr. Ajay Shrestha,
Managing Director of BOK, and Managing Director Mr. A.K Ahluwalia of EBL. I would
like to express deep appropriation to my parent and also grateful to all people who
provided valuable suggestions and documents.

GUNJA KUMARI SHAH

Researcher
 LIST OF ABBREVIATIONS

A.D. = Anno Domini

B.S. = Bikram Sambat
BOK = Bank of Kathmandu
CB = Commercial Bank
EBL = Everest Bank
etc = Etcetera
GDP = Gross domestic Production
INGO = International Non-government Organization
JVB = Joint Venture Bank
Ktm. = Kathmandu
Ltd. = Limited
MBS = Masters of Business Studies
MIS = Management Information System
NBL = Nepal Bank Ltd.
NGBL = Nepal Grindlays Bank ltd.
NIBL = Nepal Investment Bank Ltd.
No. = Number
NRB = Nepal Rastra Bank
PNB = Panjab National Bank
Pvt. = Private
Rs. = Rupees
T.U = Triubhuvan University
U.K. = United Kingdom
U.S.A = United States of America
WBR = World Bank Report
 TABLE OF CONTENTS

RECOMMENDATION
VIVA VOCE SHEET
DECLARATION
ACKNOWLEDGEMENTS
TABLE OF CONTENTS
LIST OF TABLES
LIST OF FIGURES
ABBREVIATIONS

CHAPTER - I INTRODUCTION 1-22

1.1 Background of the Study 1

1.2 History of Banking Development 4

1.2.1 Origin and Evaluation of Development Bank 7

1.2.2 In the Context of Nepal 9
1.2.3 Introduction of Commercial Banks and Investment policy 9
1.3 Statement of the Problem 13

1.4 Objectives of the Study 15

1.5 Significance of the Study 16

1.5.1 Profiles of the Banks under Study 17

1.5.2 Everest Bank Limited 17

1.5.3 Bank of Kathmandu Ltd. 19

1.6 Limitations of the Study 21

1.7 Organization of the Study 21

CHAPTER - II REVIEW OF LITERATURE 23-59

2.1 Introduction 23
2.1.1 Features of A Sound Lending and Investment Policy 29
2.2 Review of Reports 31
2.2.1 Reports Relating to Everest Bank Limited 32
2.2.2 Report Relating to Bank of Kathmandu Limited 32
2.3 Review of Research Papers 35
2.3.1 Portfolio Management in Nepalese Banks 45
2.4 Review of Legislative Provisions 55
CHAPTER - III RESEARCH METHODOLOGY 60-71
3.1 Introduction 60
3.2 Research Design 60
3.3 Sources of Data 61
3.4 Populations and Sample 62
3.5 Method of Analysis 63
3.5.1 Financial Tools 63
3.5.1.1 Ratio Analysis 63
3.5.1.1.1 Liquidity Ratio 63
3.5.1.2 Activity Ratio 65
3.5.1.3. Capital Structure Ratio 66
3.5.1.4 Profitability Ratio 67
3.5.1.5 Capital Adequacy Ratio 68
3.5.1.6 Deposit Utilization Ratio 68
3.5.1.7 Statistical Tools 69
3.6. Trend Analysis (The Least-Square Method) 69
3.6.1 Arithmetic mean 70
3.6.2 Standard Deviation 70
3.6.3 Co-Variance (C.V.) 70
3.6.4 Co-efficient of Correlation Analysis 71
CHAPTER - IV DATA PRESENTATION & ANALYSIS 72 -111
4.1. Financial Analysis 72
4.1.1. Liquidity Ratio 73
4.1.1.1Cash and Bank Balance (including M/C) to Total Deposit Ratio 73
4.1.1.2Cash and Bank Balance to Total Deposit Ratio 74
4.1.1.3Cash and Bank Balance (Excluding M/C) to Current Deposit Ratio 75
4.1.1.4 Fixed Deposit to Total Deposit Ratio 77
4.1.1.5 Saving Deposit to Total Deposit Ratio 78
4.1.1.6 NRB Balance to Total Deposit Ratio 80
4.1.2 Activity Ratio 81
4.1.2.1 Loans and Advances to Total Deposit Raito 81
4.1.2.2 Total Investment to Total Deposit Ratio 83
4.1.2.3 Loans and Advances to Total Assets Ratio 84
4.1.2.4 Interest Income to Total Income Ratio 86
4.1.2.5 Interest Expenses to Total Expenses Ratio 87
4.1.2.6 Capital Structure Ratio 89
4.1.2.7 Long term Debt to Shareholders Fund Ratio 89
4.1.2.8 Total Debt to Shareholders Fund Ratio 90
4.1.2.9 Total Debt to Total Asset Ratio 92
4.1.3. Profitably Ratios 93
4.1.3.1 Return on Equity Ratio 93
4.1.3.2 Return on Total Asset 95
4.1.3.3 Earning Per Share 96
4.1.3.4 Net Profit to Total Deposit Ratio 98
4.1.3.5 Net Profit to Total Investment Ratio 99
4.1.3.6 Risk Analysis 101
4.1.3.7 Capital Adequacy Ratio 102
4.1.3.8 Shareholders Fund to Total Deposit Ratio 103
4.1.3.9 Shareholders Fund to Total Assets Ratio 104
4.1.4 Deposit Utilization of EBL and BOK 108
4.1.4.1 Deposit Utilization of EBL 109
4.1.4.2 Deposit Utilization of BOK 110
4.2 Major Findings 115

CHAPTER-V
SUMMARY, CONCLUSION AND RECOMMENDATIONS 112- 123
5.1 Summary 112
5.2 Conclusion 113
5.4 Recommendations 118
Bibliography
Appendix i-xiii
 LIST OF TABLES

Table: 1.1 Branches of Everest Bank 17

Table: 1.2 Shareholders Group & Representative in BOD 18
Table: 2.1 Lending Priority Sector to Total Loan 34
Table: 2.2 Risk Weighted Assets required by NRB 58
Table: 2.3 Loan Loss Providing (LLP) 59
Table: 4.1 Cash and Bank Balance (Including M/C) to Total Deposit Ratio 73
Table: 4.2 Cash and Bank Balance to Total Deposit Ratio 74
Table: 4.3 Cash and Bank Balance (Excluding M/C) to Current Assets Ratio 76
Table: 4.4 Fixed Deposit to Total Deposit Ratio 77
Table: 4.5 Saving Deposit to Total Deposit Ratio 79
Table: 4.6 NRB Bank to Total Deposit Ratio 80
Table: 4.7 Loans and Advances to Total Deposit Ratio 82
Table: 4.8 Total Investment to Total Deposit Ratio 83
Table: 4.9 Loans and Advances to Total Assets Ratio 85
Table: 4.10 Interest Income to Total Income Ratio 86
Table: 4.11 Interest Expenses to Total Expenses Ratio 88
Table: 4.12 Long-term Debt to Shareholders Fund Ratio 89
Table: 4.13 Total Debt to Shareholders Fund Ratio 91
Table: 4.14 Total Debt to Shareholders Fund Ratio 92
Table: 4.15 Return on Equity Ratio 94
Table: 4.16 Return on Total Asset Ratio 95
Table: 4.17 Earning Per Share 97
Table: 4.18 Net Profits to Total Deposit Ratio 98
Table: 4.19 Net Profit to Total Investment Ratio 100
Table: 4.20 Risk Analysis 101
Table: 4.21 Return on Total Assets 102
Table: 4.22 Shareholders Fund to Total Deposit Ratio 103
Table: 4.23 Shareholders Fund to Total Asset Ratio 104
Table: 4.24 Trend Values of Loan and advances to total deposit ratio of EBL and
BOK 106
Table: 4.25 Trend Values of total investment to total deposit ratio of EBL and BOK
107
Table: 4.26 Deposit Utilization of EBL 109
Table: 4.27 Deposit Utilization of BOK 110
 LIST OF FIGURE

Figure: 1 Cash and Bank Balance (Including M/C) to Total Deposit Ratio 73
Figure: 2 Cash and Bank Balance to Total Deposit Ratio 75
Figure: 3 Cash and Bank Balance (Excluding M/C) to Current Assets Ratio 76
Figure: 4 Fixed Deposit to Total Deposit Ratio 78
Figure: 5 Saving Deposit to Total Deposit Ratio 79
Figure: 6 NRB Bank to Total Deposit Ratio 81
Figure: 7 Loans and Advances to Total Deposit Ratio 82
Figure: 8 Total Investment to Total Deposit Ratio 84
Figure: 9 Loans and Advances to Total Assets Ratio 85
Figure: 10 Interest Income to Total Income Ratio 87
Figure: 11 Interest Expenses to Total Expenses Ratio 88
Figure: 12 Long-term Debt to Shareholders Fund Ratio 90
Figure: 13 Total Debt to Shareholders Fund Ratio 91
Figure: 14 Total Debt to Shareholders Fund Ratio 93
Figure: 15 Return on Equity Ratio 94
Figure: 16 Return on Total Asset Ratio 96
Figure: 17 Earning Per Share 97
Figure:18 Net Profit to Total Deposit Ratio 99
Figure:19 Net Profit to Total Investment Ratio 100
Figure:20 Trend Line of loand and advances to total deposit ratio of EBL and
BOK 106
Figure: 21 Trend Values of total investment to total deposit ratio of EBL and
BOK 108
 CHAPTER-I
INTRODUCTION

1.1 Background of the Study

Located between India and China and with more than 28.5 million (projected for the year
2011) of population and 147181 square kilometers of area, Nepal occupies 0.3and 0.03
percentage of land area of Asia and the world respectively. In the northern hemisphere,
Nepal is situated within latitude 260 22' N to 300 27' N and of longitude 800 4' E to 880
12' E. The altitude ranges from a minimum of 70 meters to a maximum of 8848 meters
whereas the climate varies from tundra to polar. Mt Everest - the top of the world - is
both the identity and glory of this Himalayan country. The average width (North to
South) is 193 kilometers whereas the average length is 885 (East to West) kilometers. The
country has great variety of topography which is reflected in the diversity of weather and
climate simultaneously.
Specifically, the country experiences tropical, mesodermal, micro-thermal, taiga and
tundra types of climate. Nepal is a multiethnic, multilingual, multi-religious and
multicultural country. The last census 2001 revealed that there are 92 languages being
spoken in Nepal whereas 101 caste and ethnic groups residing in a uniquely harmonized
Nepalese society. Nepali stands as the official language of the country. There were
recorded eight different religions, viz., Hindu, Buddha, Islam, Kirat, Jain, Christian,
Shikh and Bahai respectively by their dominance in the last census 2001. Also known as
the light of Asia, Lord Gautam Buddha was born in Lumbini of Nepal some 2500 years
ago. As a distinct symbol of the country, Nepal has a flag with unique triangular shape in
contrast to rectangular shape of almost all countries in the world. Ruled by Shah Dynasty
for almost 240 years as a Kingdom, the country turned to a Federal Republic of Nepal in
2063-64 BS. The present Constitution of Nepal(2063) has provisioned to elect the
President from the Parliament who is the chief of the country. On the other side, the
prime minister in the cabinet holds the executive power of the state elected by the
parliament. As is common in democratic countries there is an independent judiciary
system in the country. There are a total of 601 members in the Constituent Assembly. The
Assembly is in the process of drafting a new constitution for a Federal Republic of Nepal.
Nepal is rich in natural resources such as forest, water and bio-diversity. Forest covers
approximately 36% land of the total area. The numbers of all-season rivers touches
hundreds in number though have not yet been fully exploited in generating electricity and
irrigation. Administratively, the country has been divided into five Development Regions,
14 zones and 75 districts. Likewise, there are 58 municipalities that are considered as
urban and 3915 Village Development Committees (VDCs) which are predominantly rural
areas. Densely populated, the capital city Kathmandu is a small valley that lies in the
central hill of Nepal. According to the Population Census 2001, the annual growth rate of
population is 2.25 per cent and the estimated population for the year 2012 is 28.5 million.
From the same census it is found that 7.3, 44.3 and 48.4 per cent of total population is
living respectively in the Mountain,
Hill and Terai. As such the geographical distribution of population is uneven. The
population density in the year 2001 was 157 people per square kilometer. As has been
revealed by Nepal Labor Force Survey, 2008 the literacy rates of male and female are
75.6 and 53.3 per cent respectively giving an average of 63.7 per cent. In reference to
Human Development Report 20012/13 of the UNDP, Nepal’s HDI is 0.534.Tourism is the
largest industry and one of the key sources of foreign exchange in Nepal. Nepal is a
unique destination for mountaineering, trekking, and rafting and jungle safari. It
possesses eight out of 10 highest mountains in the world. There are 10 world heritages
and unbeatable combination of natural beauty and cultural riches. In 2069/70 it welcomed
around 600 thousand tourists and earned about 357 million US dollar as an income from
tourism.
Major Macroeconomic Indicators (2012/13)
GDP at basic prices (current) in million Rs. 1060881
GDP at basic price (constant) in million Rs 563488
Annual GDP growth rate at constant price % 4.55
Per Capita GDP, current prices (NRs) 41469
Per Capita GDP, constant prices (NRs) 21807
Annual changes in real per capita GDP (%) 2.26
Nominal Per Capita GDP (US$) 556
Nominal Per Capita GNI (US$) 561
Gross domestic saving/GDP % 9.36
Gross national saving/GDP % 34.43
Gross fixed capital formation/GDP % 20.21
Export of goods and services/GDP % 9.78
Import of goods and services/GDP % 37.44
Implicit GDP Deflator 186.44
Exchange rate (US$:NRs) 74.54
The development of any country largely depends upon its economic development.
Thus, the primary goal of any nation, including Nepal, is rapid economic
development to promote the welfare of the people and the nation as well. Nepal
being a developing country is trying to embark upon the path of economic growth
rate and developing all sector of economy. Even though, the process of economic
development depends upon various factors, however economists are now
convinced that capital formation and its proper utilization plays a paramount role."
The increase in capital has always been a sort of prime mover in the process of
material growth and the rate of capital formation has been the principal variable in
setting the overall pace of economic development.
The network of a well-organized financial system of the country has great bearing
in this regard. It collects scattered financial resources from the masses and invests
them among those engaged in commercial and economic activities of the country.
In this way, the financial institutions provide savers highly liquid divisible assets at
a lower risk while the investors receive a large pool of resources. Integrated and
speedy development of the country is possible when competitive financial service
reaches nooks and corners of the country. It has been well established that the
economic activities of any country can hardly be carried forward without the
assistance and support of financial institutions. Financial institutions have catalytic
role in the process of economic development.
Thus, the financial institution collects scattered saving of the community and
invest them into most desirable and high yielding sectors of the economy to fuel
the process of economic development. It is true that the proper development and
functioning of financial institution i.e. the commercial banks, and non-bank
financial institution have their profound effect on the economy. They also help the
process of monetary in the country like ours by extending their branches and level
of financial operation.
Commercial banks are major financial institution which occupy quite an important
place in the framework of every economy because they provide capital for the
development of industry, trade, business and other resource, deficit sectors by
investing the saving collected as deposits. In this way, they contribute to the
economic growth of the nation. Besides this commercial banks render numerous
serves to their customers in view of facilitating their economic and social life. All
the economic activities of each country are greatly influenced by the commercial
banking business of that country. Commercial banks, by playing active roles, have
become the heart of financial system. Their establishment as matter of fact has
been a turning point in the history of Nepalese modern banking system. “It is
undoubtedly true that the commercial banks are already playing an increasingly
dynamic and vital role in the economic development of the country. This will
increase with time.
The role of commercial banks in economy is obviously requisite in the formulation
of bank's policy. A key factor in the development in the country is the mobilization
of domestic resources and their investment for productive use to the various
sectors. To make it more effective, commercial banks formulate sound investment
policies, which eventually contribute to the economics growth of a country. The
sound investment policies help commercial banks to maximize quality and
quantity of investment and thereby, achieve the own objective of profit
maximization and social welfare. The banking sector has to play development role
to boost the economy by adopting the growth oriented investment policy and
building up the financial structure for further economic development. Formulation
of sound investment policies and coordinated and planned efforts pushes forward
the forces of economic growth.
Commercial banks, as financial institutions, perform a number of internal
functions. Among them, providing credit is considered as most important one. In
the words of H.D. Crosse, "Commercial banks bring into being the most important
ingredient of the money supply, demand deposits through the creation of credit in
the form of loan and investments (Cliffs N.J., 1963. p.17).
Credit being the most important function of commercial banks, affects overall
development of the country. So far as, pace of economic development is
considered, it is directly related to the quality and quantity of the credit, which is
derived from various financial institutions, specially, commercial banks in Nepal.

1.2 History of Banking Development

History tells us that it was the merchant who first evolved the system of banking
by trading in commodities than money. Reviewing the history we can find that
present day banker has three ancestor of particular note. One the merchant and two
other were lender and the goldsmith. Lending and borrowing are almost as old as
money itself but modern banking sowed its seed in medieval Italy. The bank of
Venice, founded in 1157A.D. was the first public banking institution.
Subsequently, Bank of Barcelona (1401) and Bank of Genoa (1407) were
established. The Lombard migrated to England and other regarded for the
development and expansion of the modern banking.
Though, Bank of England was established in 1694 as a joint stock bank and later
on it became the first bank in the world in 1844, the growth of bank accelerated
only after the introduction of Banking Act. 1833 in United Kingdom as it allowed
opening joint stock commercial Banking system development in the landing
countries of the world.
Though the modern banking system in our country, it is a very recent origin in
Nepal to compare to other developing nations. Some operations alike to banking
were known and have been practiced even in ancient times.
Prior to the establishment of Nepal Bank Limited, there was no organized financial
institution in Nepal. During the Prime Minister ship of Ranoddip Sign around
1877AD a number of economic and financial reforms were introduced. The
establishment of the "Tejarath Adda" fully subscribed by the government in the
Kathmandu valley was one of them .In the overall development of the banking
system in Nepal the "Tejarath Adda "may be regarded as the father of modern
banking institution and for quit a long time it tended a good service to government
servants as well as to the general public. However the installation of "Kausi Tosha
Khana" as a banking agency during the regime of King Prithivi Narayan Shaha
could also lie claim to be regarded as the stop towards initiating banking
development in Nepal.
The inception of Nepal Bank Ltd. (NBL) in 1937 was a landmark in the field of
banking and financial sector in Nepal. It was established under the Special
Banking Act.1936 have elementary function of commercial bank as a semi
government organization, without existence of a central bank named Nepal Rastra
Bank(NRB) was established in 26th April 1955 with an objective of supervising,
protecting and directing the function of commercial Banking activities. Another
commercial bank fully owned by the government named as Rastriya Banijya Bank
(RBB) got established in 1966.Later on large number of commercial banks has
been into operation till date.
At present there are 32 commercial banks including other banking and non-
banking financial institutions. They are Nepal Bank Ltd., Rastriya Banijya Bank,
Nepal Investment Bank,Nabil bank Ltd, Standard charted Bank, Himalayan Bank
Ltd, Nepal SBI bank Ltd, Nepal Bangladesh Bank Ltd, Everest Bank Ltd, Bank of
Kathmandu Ltd, NCC Bank Ltd, Lumbini Bnk Ltd, NIC Bank Ltd,
Machhapuchhre Bank Ltd, Kumari Bank Ltd, Laxmi Bnk Ltd, Siddhartha Bank
Ltd, Agriculture Development Bank Ltd, Global Bank Ltd, Citizens Bank
international, Prime commercial Bank Ltd, Bank of Asia Nepal Ltd, Sunrise Bank
Ltd, DCBL Bank Ltd, NMB Bank Ltd, Kist Bank Ltd, Janata Bank Nepal Ltd,
Mega Bank Ltd, Commerz and Trust Bank Nepal Ltd, Civil Bank Ltd, Century
commercial Bank Ltd and Sanima Bank Ltd.NBL and RBB were the first two
commercial banks to be established in Nepal and continued to enjoy a duopoly
until the banking industry was liberalized in the 1980s .Together, the banks
dominate Nepal's banking industry. RBB and too lesser extend NBL have
reputation for poor service, un-commercial outlook and politically motivated
activities. Both are suggested by the KPMG/Barents reports to be technically
insolvent, suffering from large incidence of bad debts and being particularly
susceptible to scams. Now these two banks have been given to foreign companies
in management contract.( Khdka and Singh, 2056, p.1-5)
During the mid-80s, due to the liberalization policy foreign banks attracted to
come to Nepal. In 1984 Nabil bank Ltd. was established as the first joint venture
bank. After the restoration of democratic constitution that was lauded as the best
social-legal document in the world. Further the economic liberalized with a view
of enhancing private sector participation in various spheres. As consequence as in
the most to countries, the banking sphere majority occupied by large number of
joint venture banks largely dominates Nepalese financial sector.
Nepal Bangladesh Bank Ltd.Nepal Investment Bank,Standard Chartered Bank,
Himalayan Bank Ltd., Nepal SBI Bank Ltd., Nepal Bangladesh Bank Ltd., Everest
Bank Ltd., Bank of Kathmandu Ltd., Nepal Credit and commerce Bank Ltd.) was
established as joint venture bank. "Laxmi Bank Ltd. which was established as
youngest private commercial bank with the investment by Nepalese investor as
now made an agreement by with Hattan National Bank of Srilanka under the
technical service agreement as a joint venture by taking 10-15 percent share from
this bank." Other remaining Lumbini Bank Ltd, Nepal Industrial and Commercial
Bank Ltd., Machhapuchhre Bank Ltd., Kumari Bank Ltd., Siddharatha Bank Ltd
and etc are established as a private sector commercials bank by Nepalese
investors.
Quantitatively operative commercial banks although are giving some choosing
right of banking service but overall competitive environment have not been
created yet. NRB and NBL have lost their faith to the public. Which are now in
reconstruction process through privatization (Management contract)? In urban
areas Standard Chartered Bank Ltd. has been dominating the segment of
commercial banking. "On the other hand there are some banks from other country
whose domestic banking system are not properly supervised by their home country
central banks. Where the institution is carrying out, in some cases are quite
questionable banking activities." In regard of other Nepalese private commercial
banks some of them are not far from the time to evaluate the performance of some
recent organized young commercial baking's financial activities.
1.2.1 Origin and Evolution of Development Bank
Oxford dictionary define that bank means established for depositing, withdrawing
and borrowing money. When we said about Thomson’s dictionary of banking, the
bank is said to be derive from Italian word “BANCO” a bench. The early bankers
the Jews in Lombardy do their business at benches in the market place. One of the
earliest Italian banks, the bank of Venice, was originated for the management of
public loan or Monte as it was called.
French writer Revil pout said that, the use of bank notes is started on Babylon in
600 BC. And in the middle ages, Bank of Venice of Italy was established. Macleod
however does not agree with Thomson’s view, he said the Italian money changers
as such were never called “BANCHIER” in the middle ages. He gives emphasis to
say that at that period the German were master of great part of Italy and the word
bank is derived from German word ‘Back’ which means a joint stock fund and
German word Bank came to be used as its Italian equipment ‘Monte’ and was
italiazed in to ‘Banco’ and the loans were called n differently Monte or Banco on
Italian, Banke in French and Bank in England were used.
Although society general de oblique was set up in 1822, it was the French credit
mobilized that not only symbolized the migration of skill and capital for the
economic uplift of other continental nations bat also acted as inspirer to other
countries which were in search of similar institution for supply the financial
requirement of the agriculture development. The creative adoption of the basic
idea in the form of universal banks that had become the dominant form of banking
in Germany and other continental countries. The credit mobilizes and the similar
institution that followed it helped the development of Europe by mobilizing capital
resources from individual and banking sources by offering loans and participating
in equity of the industrial ventures by creating financial institution, facilitating the
development capital market and above all providing entrepreneurial service.
Origin of development bank is in Europe in the 19 th century was also followed by
several other Asian countries in the 20th century. The first Asian country to
experience such development bank was Japan. There was 1 st development bank
established in 1902 it helped a lot in the economic Transformation of Japan. It is
also said that the idea of development bank emerged in Belgium, The importance
such institution was recognized only after the establishment of industrial
development bank of Japan. Japan Development Bank is another Japanese
Development Bank established in 1953 to uplifts the industrial economy of Japan.
The next phase in the development of these institutions can be witnessed after the
second- world war when a large number of institutions like industrial development
of Canada (1944), Herste Bank in Holland (1949), Industrial credit bank in
Germany (1949), Finance Corporation for Industry in England (1948), etc. were
setup thus the basic idea behind development bank was organized and developed
from the industrialized European nations. However, their emergence in the
developing countries in Asia and Africa seems to have been strongly in nuanced
by the organization of corporation ferment in several Latin American Countries
before and during the Second World War.
1.2.2 In the Context of Nepal
Today many commercial and development bank has been establishing but before 1937,
there were no any financial and banking institution in our country. At that time the
financial and banking function were carried out by loan money lender and village
money lenders. The 1st banking institution was established in 1937 of Nepal Bank
Limited in the form of the 1st commercial bank in Nepal. Nepal Rastriya Bank
was established under the NRB Act of 1955 in 1956 in the form of central bank.

After liberalization and opened economic policies, there are so many commercial
and development banks have been established under Company Act.

1.2.3 Introduction of Commercial Banks and Investment Policy

Commercial banks are the main institutions, which are meant to collection and utilization
of small-scattered savings of the people. The commercial banks utilize the collected
resources by financing production, contribution and consumption and even to the need of
the government. Commercial bank's credit in the desired sectors constitutes the
significant part of their activities.
The commercial banks play an important role in the modern economy. The accepting of
deposits from individuals and institutions and providing loans to the needy persons and
business are its two important functions. Besides that it performs many other services or
function such as payment of subscriptions, insurance of credit instruction, purchase &
sale of securities, remittance of money and assist in foreign trade etc.
In the developing countries there is always shortage of the fund for the development
activities. There is need of development in all sectors. It is not possible to handle and
develop all the sectors by the government alone at a time. Private people also can't
undertake large business because the per capita income of the people very low.
In the context of Nepal commercial banks are the only financial institutions, which can
play very important role in the resource mobilization for the economic development in
the country. Commercial bank occupies greater role in the economic development by
generating the saving towards the desired sector from one place to another,
communicating with its branches and agencies in different parts of the country and the
world and advising to the commercial people
"Banks collect money from those who have it to spare or who are saving it out of
their income and lend this money out against goods or security to those who require
it."( Crowther,2005, p. 56.)
Investment is one of the decisions of finance functions. It involves the decisions of
capital or commitment of funds to long-term assets that would yield benefit in future. The
features of investment decisions are,
1. The exchange of current funds for future benefits.
2. The funds are invested in long-term assets.
3. The future benefit will occur to the firm over a series of years.

Future benefits of investment are difficult to measure and can't be predicted with
certainty. Because of the uncertain future, investment decision involves risk. Investment
proposal should, therefore, be evaluated in terms of both expected return and risk. Beside
the decision to commit funds in new investment proposals, capital budgeting also
involves decision of recommitting of funds when a asset becomes less productive or non-
profitable.( Pandey, , Financial Management, Vikash Publishing House Pvt. Ltd. New
Delhi, 576 Masjid Road Jungpura, eight editoin , 1992, p. 407.)
“Investment promotes economic growth and contributes to a nation's wealth. When
people deposit money in the saving account of a bank, the bank may invest by lending the
funds to various business companies. These firms in return may invest the money in new
factories and equipment to increase their production. In addition to borrowing from
banks, most companies issue stock and bonds that they sell to investor to raise capital
needed for business expansion. Government also issues bonds to obtain funds to invest in
projects, such as, the construction of dams, roads and schools. All such investment by
individuals, businessmen and groups involves a present sacrifice of income to get an
expected future benefits. As a result of which investment raises a nation's standard of
living”.( World Book Encyclopedia, 1988, p. 32.)
Investment operation of commercial banks is very risky one. For this, commercial banks
have to pay due consideration while formulating investment policy regarding loan and
investment. Investment policy is one facet of the overall spectrum of policies that guide
banks investment operations. A healthy development of any bank depends heavily upon
its investment policy. A sound and viable investment policy can be effective one for the
economy to attain the economic objectives directed towards the acceleration of the pace
of development. A good investment policy attracts both borrowers and lenders, which
helps to increase the volume and quality of deposits, loan and investment. The loan
provided by commercial bank is guided by several principles such as length of time, their
purpose, profitability and safety etc. These fundamental principles of commercial banks
investment are fully considered while making investment policy. Emphasizing upon this,
H.D. Crosse stated, "The investment policy should be carefully analyzed."
Commercial bank should be careful while performing the credit creation function.
Investment policy should ensure minimum risk and maximum profit from lending.
Diana MC Naughton In her research paper 'banking institution in developing
markets', state that "Investment policy should incorporate several elements such as
regulatory environment, the availability of funds, the selection of risk, loan portfolio
balance and terms structure of the liabilities."( Naughton, “Banking Institutions in
Developing Markets”, World Bank Publication, 1994) According to J.H. Clemens,
commercial bank should consider the national interest followed by borrowers’ interest
and the interest of the bank itself before investing to the borrowers. To further pursue his
view, bank lending must be for such purpose of the borrower that is in keeping with the
national policy and bank's overall investment policy. Thus, commercial banks have to
consider government and Nepal Rastra Bank's instructions and national and their own
interest as well.
Nepalese commercials banks lag far behind fulfilling the responsibility to invest in the
crucial sectors of the economy. Thus, the problem has become very serious one in
developing countries like Nepal can be solved through formulation of sound investment
policy. Sound investment policy can minimize interest rate spread and non-performing
assets, which cause the bank failure. Good investment policy ensures maximum amount
of investment to all sector with proper utilization.

1.3 Statement of the Problem

Various financial institutions have been established to assist the process of economic
development of our country. Emphasizing the role of commercial banks, Yogendra Regmi
says, "The major problem in almost all underdeveloped countries and Nepal is no
exception, is that of capital formulation and proper utilization. In such countries, the
commercial banks have to shoulder more responsibilities and act as development banks,
due to the lack of other specialized institutions. ( Regmi, 2005, p.25)
To avoid above problem and thereby contribute to the national economy, various
commercial banks have played vital role by accepting deposits and providing various
types of loans. Loan affects overall development of the country. The development of the
country is directly related to the volume of loan, which is also obtained from commercial
banks. The problem of landing has become very serious for developing country like
Nepal. This is due to lack of sound investment policy of commercial banks.
Nepalese commercial banks have not formulated their investment policy in an organized
manner. They mainly rely upon the instructions and guidelines of Nepal Rastra Bank.
They don't have clear view towards investment policy. Furthermore, the implementation
of policy is not an effective way.
Commercial banks are found to be making loan only on short-term basis against movable
merchandise. There is hesitation to invest on long-term project because they are much
more safety minded. So, they follow conservative loan policy, which is based on sticking
security. They don't have consider the profit potential of the project. There is raised
criticism that commercial banks have served only richer communities not the poor. This
has directly had negative impact on economic growth. Now day's commercial banks don't
seem to be capable to invest their funds in more profitable sector. They are found to more
interested in investment in less risky and highly liquid sectors i.e. treasury bills,
development banks and other securities. They keep high position and flow lower funds to
the lower profitability to commercial banks and ignorance to the national economic
growth process. This is the main reason for crisis in the commercial banks and in the
whole national economy as well.
The interest rate structure in commercial banks is unorganized and unfavorable, result in
higher spread rate, which discourages investments. They have no consideration towards
portfolio optimization. Commercial banks don't try to pay due attention towards proper
matching of deposit and loan maturity, which creates financial problem enforcing
commercial banks to take unfavorable decisions. They don't analyze financial risk,
business risk and other factors. They invest their funds in limited areas to achieve higher
amount of profit. This is regarded as a very risky step, which may lead to lose in profit as
well as principal. The main reason behind the failure of commercial banks is higher
concentration of loan. Furthermore, the credit extended by commercial banks to
agriculture and industrial sector is not satisfactory to meet the growing need of the
present day. Even if, Nepal Rastra Bank has made it mandatory to invest in priority
sector: like agriculture, small-scale industries and service. The all commercial banks have
not yet financed full 12 percent of their loans to these sectors. Commercial bank's
investment has been found to have lower productivity, which is due to the lack of
supervision regarding whether there is proper utilization of their investment.
Lack of farsightedness in policy formulation and absence of strong commitment towards
its proper implementation has caused many problems to commercial banks. This affects
profitability of a bank significantly.
Thus, the present study makes a modest attempt to analyze investment policy of Everest
Bank Ltd., comparing it with the Bank of Kathmandu. The problems especially bank of
Nepal have been present briefly as under.
1. What is the relationship of investment and loan & advance with total deposits and
total net profit?
2. Is the fund mobilization and investment policy of Everest Bank Ltd. and Bank Of
Kathmandu are more effective and efficient?
3. Does the investment decision affect the total earning of the bank?
4. Is there any stability in fund mobilization policy of Everest Bank Ltd. and Bank
of Kathmandu?
5. Is the investment strategy of Everest Bank Ltd. and Bank of Kathmandu are
successful to utilize its available funds?

1.4 Objectives of the Study

The main objective of the study is to access the investment policy and strategies followed
by EBL and Bank of Kathmandu. The specific objectives are given below:
1. To study the asset management system, profitability and risk position of
commercial banks under study.
2. To analyze the relationship of the profitability position of banks with the total
deposits & total investments.
3. To evaluate the deposit utilization trends.
4. To provide the suggestion for improvement on the basis of finding.
1.5 Significance of the Study
The proper mobilization and utilization of domestic resources become indispensable for
any developing country aspiring for a sustainable economic development and there is no
doubt that commercial banks have a pivotal role in the collection of dispersed small
saving of the Nepalese people and transforming them into meaningful capital investment.
The success and prosperity of the bank relies heavily upon the successful investment of
collected resource to the important sectors of economy. Successful formulation and
effective implementation of investment policy is the prime requisite for the successful
performance of commercial banks. Good investment policy has a positive impact on
economic development of the country and vice-versa. So, the investment policy of
commercial banks should be in accordance with the spirit of the economic upliftment of
the people.
As mentioned above, there are many loopholes in the investment policies of commercial
banks of Nepal which affects their performance to the great extent. It becomes every
body's concern when their performance does not seem so satisfactory in terms of utilizing
its resource efficiently in productive sectors. The study of commercial banks investment
policy focusing on interest rate structure, portfolio management and credit management
will strive to disclose the internal weakness and furnish the ideas for improvement.
Therefore, the researcher has undertaken the study to analyze the existing investment
policy of commercial banks and point out the defects inherent in it and provide package
of suggestions for its improvement.
1.6 Profiles of the Banks under Study
1.6.1 Everest Bank Limited

Everest Bank Ltd. is a joint venture with Panjab National Bank of India, which was
registered on 3rd marga 2049 in the department of commerce GOV, as per the company
act 2021 and the Commercial Bank Act.2031. It commenced the operation from 1st kartik
2051as per the regulation of Nepal Rastra Bank.
EBL was established in 1994 and started its operations with an objective of extending
professional and efficient banking services to various segments of the society.
The bank has it's head office at EBL House, Lazimpath. There are 50 branches all over
the country for the smooth running of its banking activities. The branches are in the
following locations.
 Table: 1.1
Branches of Everest Bank

Districts Locations
Kathmandu New-baneswar,NewRoad,Teku,Lazimpath,Santugal,Chabahil,
Balaju,Bagbazar,Golfutar,Kirtipur,Thamel,Maitidevi, Gongbu & Kalimati,
Lalitpur Pulchwok,lagankhel&Gwarko
Morang Biratnagar
Dhanusha Janakpur
Sunsari Dhuhabi, Dharan & Itahari
Bara Simara
Parsa Birgung
Rupandehi Butawal
Pokhara Newroad
Kailali Dhangadhi
Surkhet Nepalgunj
Jhapa Birtamod
Baglung AawaRoad
Lekhnath Taal chowk
Narayangarh Shahidpath
Arghakhanchi Sandhikhara
Bhaktapur Suryabinayak
Lamjung Besisahar
Sindhupalchowk Tatopani
Bhairahawa Prahari Tole
Kushmabazar Shahidchowk
Surkhet Birendrachowk
Dang BP chowk
Kapilvastu Krishnanagar & Taulihawa
Rupendehi Madhuvani VDC ward no:8
Makawanpur Bank Road
Syanganga Putalibazar
Rautahat Chandranigahpure-1
Rajbiraj Tribhuwan chowk Road
Guariya Narayangopal chowk
Tikapur Khakraula Road
It has established its representative office in New Delhi too, for performing the banking
operation.
The main objective of this bank is to provide the banking facilities for the people in the
country and to make the easy access of lending for the agriculture, industrial and
commercial sectors.
The share composition of this bank stands as follows.
Punjab National Bank, India 20%
Nepalese Shareholders 30%
Promoters 50%
The bank has issued the 6% debenture from 30 th chaitra 2061s. @1000 in the numbers of
300000(3 lakhs) out of which 250000 Units for the institutions and 50000 Units for the
general public.
The representation in the board of directors remains as follows:

Table 1.2
Shareholders Group & Representative in BOD
S.N. Shareholder Group No. of Representative in the BOD
1- Promoter Shareholder’s (Group A) 5
2- General Shareholder’s(Group B) 2
3- Punjab National Bank(Group C) 2
Total - 9

Authorized Capital Rs.2000,000,000.00

Issued Capital Rs.1391635700.00
Par value per share Rs.100
Paid up value per Share Rs.100
No. Of Shareholders : 12316357
Incorporation year : 2049BS.: (1993AD)
Listing date : 12/25/2052 A.D(1995AD)

CHANGE IN PAID UP CAPITAL (Rs. In Million)

Year Before After Remarks

2007/08 518 831.4

 2008/09 831.4 838.82

2009/10 838.82 1030.47

2010/11 1030.471279.09

2011/12 1279.09 1391.64

EBL is playing a pivotal role in arranging remittance of funds and from India through
instant transfer facility in addition to the drafts drawing arrangement with 170 branches
of PNB all over India. The bank is also offering cash management system for managing
the funds of corporate exporting to India by collecting their funds from about 183
locations in India. The bank provides withdraw and deposit facility in any bank of the
kingdom of its clients 365 days banking services, ATM card, evening counter (in
Kathmandu). The EBL was awarded from London as Bank of the year this year.

1.6.2 Bank of Kathmandu Ltd.

BOK was established in 1993 and started its operations in March 1995 in collaboration
with the SIAM commercial bank OCC, Thailand under the Company Act, 1997.
Bank of Kathmandu Ltd, is a culmination of a comprehensive vision if the promoters to
take the Nepalese economy to a newer realm in the global market. Each promoter of
Bank of Kathmandu has successfully demonstrated leadership skills, business acumen
and entrepreneurial talents in his/her responsive field. Incorporated in 1993, Bank of
Kathmandu come into operation in march 1995 with the following predominant
objectives are identify business prospects not yet catered by then existing commercial
banks and offer new banking product and services. Introduce modern banking technology
facilitating bank and business operations and transaction.
Bank of Kathmandu's activities globe around deposit mobilization, advancement of
various credits, international banking including trade finance, inward and outward
remittances and fund and portfolio management. Bank of Kathmandu is committed to
providing products and services of the highest standards to it's customers by
understanding their requirements best suiting the market needs. In pursuit to deliver the
products and services of the highest standards, Bank of Kathmandu has state-of-art
technology for appropriate and efficient management, information system (MIS) and
rendering quality services, VSAT and Radio Modem for networking, SWIFT for
international trade and transfer of funds around the world, correspondent banking
relationship with over 200 banks worldwide for effective and proficient execution of
international trade and remittance activities, gamut of corporate and retail banking
products and services and centralized banking operations for better risk management,
consistent service deliveries and lowering. It has got nine office including branch office
and head office all over the Nepal.
Authorized Capital Rs.2000000000.00
Paid –Up Value per Share Rs.100
Issued Capital Rs.1604187300.00
No. of shareholders : 16041873
Paid Up Capital Rs.1604187300.00
Incorporation Year 2050BS/(1994AD)
Par Value per share Rs. 100.00
Listing Date B.S. 04/02/2054/(1998AD)

CHANGING IN PAID-UP CAPITAL (Rs. in million)

Year Before After Remarks

2007/08 603.14 603.14 -

2008/09 603.14 844.40 -

2009/10 844.40 1182.16 -

2010/11 1182.16 1359.48 -

2011/12 1359.48 1604.19 -

1.7 Limitations of the Study

This study is simply a partial study for the fulfillment of MBS degree. This is not far
from several limitations which weaken the heart of the study e.g. inadequate coverage of
industries, time period taken, reliability of financial and statistical tools and other
variation. This study has been limited by the following factors.
1. There are many factors that affect investment decision and valuation of the firm.
However, this study concentrates only those factors, which are related with
investment.
 2. The whole study based on secondary data.
3. The whole study is based on the data of ten years i.e. .from 2007/08 to 2011/12.
4. The study covers only two commercial banks

a. Everest Bank Ltd.

b. Bank of Kathmandu Ltd.

1.8 Organization of the Study

The whole study is divided into five different chapters.
Chapter 1: Introduction: In this chapter included background of the study, statement of
the problem, objective of the study, limitation of the study, plan of the study, introduction
of EBL and BOK, focus of the study are presented in the section.
Chapter 2: Review of literature: this section includes the conceptual and review of
related studies to find out the existing gap and to identify what new can be contributed.
This Chapter also highlights development of banking system in Nepal.
Chapter 3: Research Methodology: This section includes research design, population
and sample, collection of data, source of data, method of analysis for helping the research
to make fruitful and effective.

Chapter 4: Presentation and Analysis of Data: This chapter section includes

presentation and analysis of financial statement by using different financial tools. It also
includes major finding of the study.
Chapter 5: Summary, conclusion, findings and Recommendation: It is the last
process of conducting the thesis where includes Summary of findings, conclusion and
Recommendations.
Bibliography:
1) Annual Reports of EBL
2) Annual Reports of BOK
3) Books:
 CHAPTER –II
REVIEW OF LITERATURE
2.1 Introduction
The introductory chapter has already highlighted upon the commercial banks growth and
performance on terms of their investment operation. Now in this chapter the focus has
been made on the review of literature relevant to the investment policy of commercial
banks. Every possible effort has been made to grasp knowledge and information that is
available from libraries, document collection centers, other information managing
bureaus, and internet and concern commercial banks. This chapter helps to take adequate
feed back to broaden the information base and inputs to my study. Conceptual framework
given by different authors, research scholars, etc. in this chapter is reviewed from the
books research papers, annual reports, and articles etc., which are arranged into the
following order.
1. Review of Books.
2. Review of Reports
3. Review of Research papers.
4. Review of Articles.
5. Review of Theses.
6. Review of Legislative Provisions.
This research, in these chapter only two types of review of literature has been conducted
that are review of related studies and conceptual review which are mentioned as
follow.
The banks are such types of institutions, which deal in money and substitute for money.
They deal with credit and credit instruments. Good circulation of credit is very much
important for the bank. Unsteady and unevenly flow of credit with ad-hoc decision harms
the economy and the bank as well. Thus, to collect fund and utilize in a good investment
is not a joke for such organization. An investment of fund may be the question of life
death for the bank.
"Banks are these institutions which accept deposit from the public and on turn provide
credit to trade business and industry that directly makes a remarkable impact on the
economic development of country. To collect fund and utilize it on good investment is a
very risky job. Ad-hoc investment decision leads the bank out of business there by
drawing the economic growth of a country. Hence sound investment policy of a bank is
another secret of a successful bank. Various people have given their view regarding the
investment policy of commercial banks.( V.K Bhalla, 2001, p.9)
From the above definition, it is clear that an investment means to trade a known rupee
amount today for some expected future stream of payments or benefits, that will expected
the current outlay by an amount that will compensate the investor for the time the funds
are committed for the expected changes in prices during the period and for the
uncertainty involved in expected future cash flows. The investment is the most important
function of commercial banks. It is the uncertain and risky environment. It is a very
challenging task for commercial banks. So a bank has to be very cautions while investing
their funds in various sectors. The success of a bank heavily depends upon the proper
management of it’s invest funds.
Investment management of a bank is guided by the investment policy adopted by the
bank. The investment policy of the bank helps the investment operation of the bank to be
efficient and profitable by minimizing the inherent risk.
Various authors have expressed their views regarding investment policy of commercial
banks, then formulation and implementation differently. In the words of S.P. Singh &
Singh " The investment (credit) policies of banks are conditioned, to great extent, by the
national policy framework, every banker has to apply his own judgment for arriving at a
credit decision, keeping of course his bankers policy also in mind. "( Sing S.P.& Singh S.
1983.)
They further state, "The field of investment is more challenging as it offers relatively
greater scope to banker for judgment and discretion in selection their loan portfolio. But
this higher degree of freedom in the field of credit management is also accompanied by
greater risk. Particularly during recent years, the credit function has become more
complex."
Ganesh Kumar Shrestha, (Financial sector reform)
Financial sector reform means gradual liberalization of financial market and its players
and opening of all types of depository institution and other non- depository financial
institution to the private sector. Depository institution include commercial banks,
development banks, finance companies, co-operative banks etc. other financial
institutions include life and non-life insurance companies, pension fund/provident
funds/retirement funds, mutual funds, unit trusts, mutual savings banks, mutual funds,
saving and loan associations, credit unions, mortgage banks, money marker mutual funds,
deposit insurance corporation/company, credit guarantee corporation/company and so on.
( Ganesh Kumar Shrestha, Financial Sector Reforms in Nepal, 2004, P.72.)
According to Chenny and Moses, The investment objective is to
incrsystematically the individual's wealth, defined as asset minus liabilities. The
higher the level of the desired wealth the higher the must be received. An
investor seeking higher return must willing to face higher level of risk"
Finance company utilises its founds in suitable area and sector, Finance company
cannot get its aim of profit earning without mobilizing its founds in right sectors
and different activities. Many types of activities and other thing can origin for the
purpose of receiving invest from the Finance company. But Finance company
should separate the useful and profitable sector for mobilization of its funds.
Finance company being only financial intermediary, We will not be able to make
any profit unless he mobilizes funds suitaly, It is from out of the interest he earns
on loan and advances, he has to pay interest on deposits, meet establishment
expenses, meet liquidity of cash balance, and yet allow him some balance from
out of which he can build reserve and pay dividend to the shareholder. Unless the
finance company makes a judicious use of the resources at his command, it is not
possible for him to maximise his income. It must also be stated at the outset that
the banker is not completely free in the matter of deployment of funds. As
commercial organization they are expected to make profit. If there is no profit,
there will be adverse criticism against public sector finance company booth in
and outside the parliament. When these finance company are asked to open new
branches in areas which do not allow profits for years or asked to grant loan to
the priority sectors such s small industries and agriculture with a high incidence
of bad debts. There is need for counter balancing profit from elsewhere.
Therefore, this finance company will have to show an ascending order of profits
in order to ensure growth with stability. For this purpose the finance company
will have to allocate land able resources to different segments in such a manner
this finance company can ensure adequate profitability while at the same time
responding to policies laid down in accordance with national objectives.
The banks are such types of institution, which deal in money and substitute for
money. The deal with credit and credit instrument. Good circulation of credit is
very much important for the banks. Unsteady and unevenly flow of credit harms
the economy. Thus, to collect fund an mobilize it in a good investment is not a
joke for such organization. An investment of fund may be the question of life and
death of the bank.
In the words of Sharpe and Alexander "Investment, it is broadest sense means the
sacrifice of certain present value of future value.
Preeti Singh has defined investment in the way "Investment is the employment
of funds with the aim of achieving additional income of growth in value frank K.
Reilly has defined investment in this way. "An investment may be defined as the
current commitment of funds for a period of time to derive a future flow of funds
that will compensate the investing unit for the time the fund are committed, for
the expected rate information and also of the uncertainly involved in the future
flow of the funds"
Charles P. Jones defined that, Investments as the commitment of funds to one or
more assets that will be held over some future time period. Investment is
concerned with the management of an investor's wealth, which is the sum of
current income and present value of all future income"
Sunity Shrestha in her book," Portfolio behavior of commercial banks in Nepal"
said that the commercial banks fulfill the credit needs of various sector of the
economy services sector. The lending policy of commercial bank is based on the
profit maximizing of institution as well as the economic enhancement of the
country.
Frank k. Reilly define investment in the words, "An investment may be defined the
current commitment of funds for a period of time to derive a future flow of funds that
will compensate the investing until for the time, the funds are committed, for the
expected rate of inflation and also for the uncertainty involved on the future flow of
funds".
"Banks are these institutions which accept deposit from the public and on turn provide
credit to trade business and industry that directly makes a remarkable impact on the
economic development of country. To collect fund and utilize it on good investment is a
very risky job. Ad-hoc investment decision leads the bank out of business there by
drawing the economic growth of a country. Hence sound investment policy of a bank is
another secret of a successful bank. Various people have given their view regarding the
investment policy of commercial banks."( Bhalla, 2001)
Emphasizing the important of investment policy, H.D. Crosse puts in this way,
“Lending is the essence of commercial banking, and consequently the formulation and
implementation of sound policies are among the most important responsibilities of bank
directors and management. Well-conceived lending policies and careful lending practices
are essential if a bank is to perform, its credit creating function effectively and minimize
the risk inherent in any extension of credit.( H.D. Crosse, 1963)
He further adds, the formulation of sound landing policies for all banks should have
adequate and careful consideration over community needs, size of loan portfolio,
character of loan, credit worthiness of borrower and assets pledged to security borrowing,
interest rate policy.
Further in details he deals with what types of loan do bank make? And how much of
loans in each loan to be invested? Banks make a variety of loans to a wide variety of
customers from many different purposes from purchasing automobile to construction of
homes and making trade with foreign countries. Therefore, no uniforms rules can be laid
down to determine the portfolio of a bank. The environment, in which the bank operates,
is influenced by its investment policy. The nature and availability of funds as also assets
differ from country to country and also from region to region within a country. For
example, scope of a bank operating in Jumla will be different from the scope of a bank
operating in Kathmandu. The investment policy to be applied in Kathmandu may not be
applicable to the customers of Jumla because the demand for loans is less rural areas
where as it is higher in city areas.
A commercial bank must mobilize its deposits and other funds to profitable, secured and
marketable sector so that it can earn a handsome profit as well as should be secured and
can be converts into cash whenever needed. Obviously, a firm that is being considered for
commercial loans must be analyzed to find out why the firm needs and when and how it
will be able to repay the loan. Investment policy provides the bank several inputs through
which they can handle their investment operation efficiently ensuring the maximum
return with minimum exposure to risk, which ultimately leads the bank to the path of
success.
2.1.1 Features of a Sound Lending and Investment Policy(V.K Valla,., “Investment
Management” S. Chand & Co. Ltd. 1982, 1st edition, p.14-17)
The income and profit of a bank depends upon its lending procedure, lending policy and
investment of its fund in different securities. The greater the credit created by the bank,
the higher will be the profitability. A sound lending and investment policy is not only
prerequisite for banks profitability, but also crucially significant for the promotion of
commercial saving of a backward country like Nepal.
Some necessities for sound lending and investment policies, which most of the bank must
consider have been given by many authors as under.

1. Safety and Security

The bank should never invest its fund in those securities, which are subject to too much
depreciation and fluctuations because a little difference may cause a great loss. It must
not invest in funds into speculative businessman who may be bankrupt at once and who
may earn millions in a minute also. The bank should accept that type of securities, which
are commercial, durable, marketable and high market prices in the cases "MAST" should
be applied for the investment where,
M = Marketability
A = Ascertain ability
S = Stability
T = Transferability

2. Profitability
A commercial bank can maximize its volume of wealth through maximization of return
on their investment and lending. So, they must invest their funds where they gain
maximum profit. The profit of commercial bank mainly depends on the interest rate,
volume of loan; it's time period and nature of investment in different securities.
3. Liquidity
People deposit money at the bank in different account with confidence that the bank will
repay their money when they need. To maintain such confidence of the depositors, the
bank must keep this point in mind while investing its excess funds in different securities
of at the same time of lending. So that, it can meet current or short-term obligation when
become due for payment.
4. Purpose of loan
Why is a customer in need of loan? This is very important for any Banker, if borrower
misuses the loan granted by the Bank, they can never repay and bank will possess heavy
bad debts. Detailed information about the scheme of the project or activities would be
examined before lending.

5. Diversification
"A bank should not lay all its eggs on the same basket." This saying is very important to
the bank and it should always careful not to grant loan in only one sector. To minimize
risk, a bank diversify its investment on different sectors. Diversification of loan helps to
sustain loss according to the law of average because if securities of a company deprived,
there may be appreciation in the securities of other companies. In this way, the loss can
be recovered.

6. Tangibility
Though it may be considered that tangible property doesn't yield an income a part from
direct satisfaction of possession of property many times, intangible securities have lost
their value due to price level inflation. A commercial bank should prefer tangible security
to intangible one.

7. Legality
Illegal securities will bring out many problem for the investor. A commercial bank must
follow the rules and regulation as well as different direction issued by Nepal Rastra Bank,
Ministry of Finance, Ministry of Law and other while mobilizing its fund
2.2 Review of Reports
Under this annual report of concerned bank are received in order to highlight the brief
profile of the bank.

2.2.1 Reports Relating to Everest Bank Limited

Everest Bank Ltd. (EBL) has been established with the objective of extending
professionalized banking service to various sectors of society in the Nepal and there by
contributes in the economic development of the country. The bank had come into
operation from 18th Oct.1994 (1st Kartik 2051 B.S.). EBL is a joint venture with Panjab
National Bank (PNB), one of the largest commercial bank in India having over 4000
branches and more than 200 foreign correspondents around the globe. PNB has a century
old tradition of successful banking and is known for it's financial strength and well; aid
down modern banking systems and procedures. PNB is providing the top management
services to EBL under a Technical Service Agreement signed between the two
institutions. EBL, thus, has the advantage of the banking expertise and financial strength
of its partner.

2.2.3 Report Relating to Bank of Kathmandu Limited

Bank of Kathmandu (BOK) is a culmination of comprehensive vision of the promoters to
take the Nepalese economy to newer realm in the global market. The promoters
comprehensive vision and the government over whelming support gave birth to BOK as
one of the private sector bank of the country in 1993, which commenced its business in
March 1995.
BOK is established by a group of distinguished civil servants and renowned businessman
in collaboration with the SIAM commercial public Co.Ltd. (SCB), is a leading bank of
Thailand. The collaboration with SCB supported BOK to bring the technical and
Nepalese banking sector. Upon establishment of BOK as one of the reputed banks in the
short period the Nepalese promoters decided to conclude the technical service agreement
with the Nepalese professional as it could further enhance its business performance years
a head under the Nepalese management. With the well acclaimed capabilities of the
Nepalese management team .BOK has successfully enhanced its capital structure,
profitability reach to the customers and created image in the market. It has created a
position in the industry in a shortest possible span of time. BOK is proud to be the banker
of the leading business house, INGOs diplomat agencies and foreign projects and to be
lead bank in several consortiums and financing in the country.
Policy Formulation and Implementation for Commercial Bank
 In the process of amending the existing regulatory directives as and when
require, some unclear sections of the regulations/directives were clarified, some
were abolished while other was revised in FY 20011/12 These directives
included the following:
(a) Commercial banks were allowed to open a bank branch within the Kathmandu
valley after opening two branches outside the valley.
(b) The provision of maintaining 5.5 percent interest spread between deposits and
lending rate was abolished.
(c) A directive was issued regarding sale of promoters share and putting it as
collateral.
(d) Credit to the small farmers development bank limited (SFDB) will be treated as
credit to the deprived sector.
(e) A directive was issued in relation to financial guarantee and investment in
government bonds.
(f) Apart from the clarification relating to the investment in CIB, NRB made some
revisions in some of its directives regarding banks paid-up capital, swap loan,
formation of audit committee, adjustment in loan loss provisioning, various
aspects of corporate governance, rescheduling and restructuring of loans and
advances, etc.
 To consolidate the different acts of commercial banks and financial
institutions under an umbrella a draft of the bank and financial institutions
ordinance was prepared and submitted to the ministry of finance.
 With a view to reducing gradually the lending to priority sector by
commercial banks, the following arrangement was made with effect from FY
2011/12.
While lending to priority sector will not be compulsory for the commercial banks
from FY 2011/12 onwards, provision of lending to the deprived sector will be
continued.
 Table no: 2.1
Lending Priority Sector of Total Loan
Minimum ceiling of priority sector lending
Fiscal Year
as percent of total loan
2006/07 7 percent
2007/08 6 percent
2008/09 4 percent
2009/10 2 percent
2011/12 2 percent

 For the enlistment of the sick industries, refinancing of Rs. 303 million was made
available to 40 such industries through various commercial banks.
 With regard to the establishment of a new commercial bank, a license was issued
to Siddhartha bank limited.
 While an agreement relating to relating to technical support services was signed
between laxmi bank limited and Hatton National bank of Sri Lanka, the bank of
Ceylon, another Sri Lankan Bank, withdrew its share from Nepal of Ceylon
Limited.

2.3 Review of Research Papers

Many researchers have analyzed their found mobilizing view and findings in
their research papers in this subject through investment policy of commercial
banks.
The NRB has been using OMOs as a principal instrument for managing monetary
liquidity. In addition to commercial banks, the Liquidity Monitoring and Forecasting
Framework (LMFF) have now covered development banks and finance companies as
well. Likewise, liquidity management has been done by considering credit flows, deposits
and cash balances of BFIs, as well as interbank rate and primary auction of treasury bills.
In 2012/13, a total liquidity of Rs. 8.5 billion was mopped up through outright sale
auctions. In 2012/13, BFIs utilized SLF of Rs. 54.98 billion compared to Rs. 5.57 billion
in the previous year. During 2012/13, commercial banks carried out interbank
transactions of Rs. 725.77 billion among themselves, and development banks and finance
companies carried out interbank transactions of Rs. 184.58 billion. Such interbank
transactions were Rs. 212.77 billion among commercial banks and Rs.172.90 billion
among development banks and finance companies in the previous year.
Scope of Inter Bank Business In Nepal" MR. Sundershan Prasad Adhikari,
Deputy director of NRB had given a view point in scope of inter Bank Business
in Nepal Inter-bank market in the mainstay of the banking business, The inter-
bank market serves as a wholesale market of banks. The inter-bank market has
come-up to enable banks to fund liquidity their growing fund requirements,
Excepts during times of tight liquidity situation, funds are always available at a
price. Interbank transactions are financial cities. Tokyo, London, New York,
Hong Kong, Dubai, peris, Franfurt, and others, Due to time differences in this
financial center, the markets are open for about 24 hours. The markets start its
business rights from Tokyo, Followed to Singapore, Hong Kong and Nepal then
to Europe, Canada and America and again start from Tokyo next day.
Type of inter Banks transaction.
He had presented two types of transaction in the article.
1. Deposits (Placements)/Loans (Borrowing)
2. Foreign exchange

He had presented about inter dealing operation-" The Dealers deal with each
other's per the guideline of the NRB and prescribed by their own management.
For the smooth operation of inter banks transaction. Foreign exchange and
money dealer's Association (FEDAN) has also sets rules and regulation for the
member's banks. A few aspects of inter Banks Dealing Operation are presented
here under.
 Position
 Nostro accounts
 Inter-Banks Deposits (Placements)
 Inter-Banks sales and purchases
He had explain about function of inter banks market and looking ahead the inter
banks market works as intermediaries function in the flow of funds. It enables
banks to take speculation and / or Hedging position against interest rate and
exchange rate movements. A major function of inter-banks marker is to enable
banks to cope up with the lumpiness of wholesale, sized deposits and loans and
also plug up holes in the balance. Sheet Unwanted deposits can be laid of to other
needy banks. Funds, needed to support lending can be bid for in the inter-bank
market. Inter banks market gives confidence the funds to meet balance-sheet
contingency. In addition, the inter-banks enable the risk lending to be spread
among other banks.
The size and volume of Nepalese inter-bank transaction is very small. Out of
different commercial banks, only three banks are foreign exchange sellers while
others banks are purchasers in the inter-banks business. Likewise, only one bank
is accepting foreign exchange deposits from other banks. Forward sale contract
of foreign exchange for customers are yet to be started by country's larger two
old banks these two banks, which have mobilized more than 50 percent of
deposits and extended about 60 percent of loans, have also yet to start, inter-bank
placement transactions. A limited number of hedging tools like, spot purchases
and sale of foreign exchange and forward sale of foreign exchange to customers
businesses are taking place. In ever few case foreign exchange swaps contracts
were done between few banks. Recently, in view to take benefit from prevailing
higher rate of interest & loan term placements, NRB has permitted commercial
banks entering in to interest rate swap contracts. It is hoped that after the
handover of the management of two larger old banks to the international experts,
the inter-bank market will be more efficient and competitive without active
participation of these. Two banks in the interbank; the inter-bank business in the
country could not work properly.
Mr. Bhatta, (2005), in his article "Financial polices to prevent financial
crisis"has given more exposes on Nepalese financial market sector. He has
mentioned the financial crisis occurred in China, Mexico, South Asia, Russoan
federation Equador and Brazil & Argentina. This crisis affected all these
economic by posing negative effects in their real output. He has also focused on
Nepalese financial market, which is directly affected by the national and
international events. the most effected event was September 11 incident in the
U.S.A. have added more to the fragility in the global financial market. In present
context in many parts of the world, the move towards liberalization is getting its
momentum on one hand and the process of economic development is being
threatened due to various unanticipated incidents on the other. He has defined a
financial crisis is a description to financial markets in which adverse selection
and moral hazard problems become much worse, so that financial markets are
unable to efficiently channel funds to those who have the most productive
investment opportunities.
He has given light on the dynamics of financial crisis dividing it into three stages
Also he has suggested the policies to prevent financial crisis. Following policies
are supposed to be applicable for preventing financial crisis.
 a. Prudential supervision.
b. Accounting standards & disclosure requirements.
c. Legal and judicial system
d. Monetary policy and price stability
e. Exchange rate regimes and foreign exchange reserves.
f. Capital controls
g. Restrictions on foreign denominated debt.
h. Reduction of the role of the state owned financial institution
i. Encouraging market based discipline.
j. Entry of foreign banks
k. Limitation of too-big-to fail in the corporate sector
l. Sequencing financial liberalization etc.
Lastly he has concluded that there is no doubt that the key to preventing future
financial crisis is to implement sound domestic economic policies and build
robust financial institutions. the experience of the crisis hit countries, specially
during the decade of nineties, has proved that a country opening to liberalized
economic policy hould adopt sequencing policies constraining the ace of
participation in the global market place until a sound domestic infrastructure can
be put into place.
Mr. Shekhar (2007) has presented a short glimpse on investment in different
sector, its problem and prospects through his article, Deposit mobilization, its
problem and prospects.
On his article, he has expressed that. "Deposit is the life blood of any financial
institution, be it commercial bank, finance company, co-operative or non-
government organization. "He has added In consideration of ten commercial
banks, nearly three dozen of finance companies, the latest figure does produce a
strong feeling that a serious review must be made of problems and prospects of
deposit sector. Barring few joint venture banks, other organizations rely heavily
on the business deposits receiving and credit disbursement.
In the light of this Mr. Pradhan has pointed out following problems of deposits
mobilisation in Nepalese perspective.
a. Due to lack of education, most of Nepalese people do not go for saving in
insititutional manner. However, they are very much used of saving, be it in
the form of cash, ornament of kind. their reluctance to deal with
institutions system are governed by their lower level of understanding
about financial organization, process requirement, office hour withdrawals
system, availability of depositing facilities and soon.
 b. Due to the lesser office hour of banking system people prefers for holding
the cash in the personal possession.
c. Unavailability of the institutional services in the rural areas.
d. No more mobilization and improvement of the employment of deposits in
the loan sectors.
Mr. Pradhan (2009) has not only pointed out the problems but also suggested
for the prosperity of deposit mobilization. They are given as

a. By cultivating the habit of using the formal sector for transactions must be
as priority and continuous educational program.
b. By adding service hour's system will definitely be an appropriate step.
c. By providing sufficient institutional service in due rural areas. If deposits
mobilization materialize, the should be taken as major achievement as this
generated fund can be used somewhere else by the bank. NRB could
endorse this deposit collection by continuing to subsidies overhead cast far
little longer period. A full scale of field office system could be taken back
and modes manpower strength deputed to cut-down overhead cast.
NRB could also organize training programmer to develop skilled manpower.
d. By spreading co-operative to the rural areas mini banking services are to
be launched.
e. The scheme of mobilizing the deposit in the form of free personal accident
insurance, deposit insurance may be fruitful. Not only waiting far potential
customer it is better to reach to the potential depositors.
At last, but that the least Mr. Pradhan mentioned deposit mobilization carried out
effectively is in the interest of depositors, society, financial sectors and the
nation. Lower level of deposit rising allows squeezed level of loan delivery
leaving more room to informal sectors. That is why higher priority to deposit
mobilization has all the relevance.
Bodhi B. Bajracharya through his article has concluded that the mobilization of
domestic saving is on of the prime objectives of the monitory police in Nepal.
For this purpose commercial banks stood as the vital and active financial
intermediary far generating resources in the form of deposit of private sectors so
far providing credit to the investors in different aspects of the economy.
Mr. Shiva,(2006) Deputy chief officer of NRB Banking operation department
had given a short glimpse on the portfolio management in commercial banks,
theory and practice. Mr. Shrestha has highlighted issues in the article.
The portfolio management becomes very important both the individual and the
institutional investors. Invests would like to select a best mix of invests assets
subject to the following aspects.
 Higher return which is comparable with alternatives opportunities
available according to the risk class of investors.
 Good liquidity with adequate safety of investment.
 Certain capital gain
 Maximum tax concession
 Flexible investment
 Economic efficient and effective investment mix
In view of above aspects following strategies are adopted.
 Do not hold any single security; try to have a portfolio of different
securities.
 Do not put all the eggs in the one basket, to have diversified
investment.
 Choose such a portfolio of securities, which insures maximum
return with
Minimum risk or lower of return with added objectives of return with added
objectives of wealth maximization.
However, Mr. Shrestha had also presented following approach to be adopted for
designing a good portfolio and its management.
 To find out the invisible assets [generally securities] having scope
for better returns depending upon individual characteristics like age,
health, need, disposition, liquidity, tax liability etc.
 To find out the risk of securities depending upon the attitude of
investor toward risk.
 To develop alternative investment strategies for selecting a better
portfolio, this will ensure a tradeoff between risk and return so as to attach
the primary objectives of wealth maximization at lower risk.
 To identify of securities for investment to refuse volatility of return
and risk,
Mr. Shrestha (2004) had presented two types of investment analysis technique,
i.e. fundamental analysis and technical analysis to consider any securities such as
equity debenture or bond and other money and capital market instrument. He has
suggested that the bank having international network can also offer access to
global financial markets. He had pointed out the acquirements of skilled
manpower, research and analysis team and proper management information
system (MIS) in any commercial bank to get success in portfolio management
and customers confidence.
According to Shrestha, the portfolio management activities of Nepalese
commercial banks at present are in nascent stage. However, on the other hand
most of the banks are not doing such activities so for because of following
reasons.
 Unawareness of the clients about the services available.
 Hesitation of taking risk by the clients to use such facilities.
 Lack of proper techniques to run such activities in the best and
successful manner.
 Less developed capital market and availability of new financial
instruments in the financial markets.
Regarding the joint venture commercial banks, they are very eager to provide
such services but because of above mentioned problems very limited
opportunities are available to the banks for exercising the portfolio management.
Shrestha had drowned following conclusion.
 The survival of the banks depends upon its own financial health and
various activities.
 In order to develop and expand the portfolio management activities
successfully, the investment management methodology of a portfolio
manager should reflects high standard and give their clients the benefits
of global strengths, local insights and prudent philosophy.
 With the disciplined and systematic approval to the selection of
appropriate countries, financial assets and the management of various
risks, the portfolio manager could enhance the opportunities for each
investors [clients] to earn superior return over time.
 The Nepalese bank having greater network and access to national
international capital markets have to go for portfolio management
activities for the increment of their fee based income as well as to enrich
the clients based and to contribute in national economy.
There are not much articles related to investment management in Nepal. Shiba Raj
Shrestha, Deputy Chief Officer of Nepal Rastra Bank, Banking operation Department,
had given a short glimpse on the "Portfolio management in commercial bank, theory and
practice.
Mr. Shrestha had highlighted following issues in the articles. The portfolio management
becomes very important both for individuals as well as institutional investors. Investors
would like to select a best mix of investment assets subject to following aspect:
1. Higher return which is comparable with alternative opportunities available
according to the risk class of investors.
2. Good liquidity with adequate safety of investment.
3. Certain capital gains.
4. Maximum tax concession.
5. Flexible investment.
6. Economic, efficient and effective investment mix.

In the view of above aspect following strategies are adopted:

1. Do not hold any single security i.e. try to have a portfolio of different securities.
2. Do not put all the eggs in the one basket i.e. to have a diversified investment.
3. Choose such a portfolio of securities, which ensures maximum return with
minimum risk or lower of return with added objective of wealth maximization.

However, Mr. Shrestha had also presented following approach to be adopted for
designing a good portfolio and its management.
1. To find out the ingestible assets (generally securities) having scope for better
returns depending upon individual characteristics like age, health, need
disposition, liquidity, tax liability etc.
2. To find out the risk of the securities depending upon the attitude of investor
towards risk.
3. To develop alternative investment strategies for selecting a better portfolio, which
will ensure a trade-off between risk and return so as to attach the primary
objective of wealth maximization at lower risk?
4. To identify securities for investment to refuse volatility of return and risk.

Mr. Shrestha had presented two types of investment analysis technique i.e. fundamental
analysis and technical analysis to consider any securities such as equity, debenture or
bond and other money and capital market instruments. He had suggested that the banks
having international network can also offer access to global financial markets. He had
pointed out the requirements of skilled manpower, research and analysis team and proper
management information system (MIS) in any commercial bank to get success in
portfolio management and customers' confidence.

2.3.1 Portfolio Management in Nepalese Banks

According to Mr. Shrestha, the portfolio management activities of Nepalese commercial
bank at present are in nascent stage. However, on the other hand, most of the banks are
not doing such activities so far because of following reasons.
 Unawareness of the clients about the service available.
 Hesitation of taking risk by the clients to use such facility.
 Lack of proper techniques to run such activities in the best and successful manner.
 Less developed capital market and availability of few financial instruments in the
financial market.

Regarding the joint venture commercial banks, they are very eager to provide such
services but because of above-mentioned problems very limited opportunities are
available to the bank for exercising the portfolio management.
Mr. Shrestha had thrown following concluding remarks:
The survival of the banks depends upon its own financial health and various activities.
 In order to develop and expand the portfolio management activities successfully
the investment management methodology of a portfolio manager should reflect
high standards and give their clients the benefits of global strengths.
 With the disciplined and systematic approval to the selection of appropriate
countries, financial assets and the management of various risks, the portfolio
manager could enhance the opportunity for each investor (client) to earn superior
returns overtime.
 The Nepalese banks having greater network and access to national and
international capital markets have to go for portfolio management activities for
the increment of their fee based income as well as to enrich the client base and to
contribute in national economy.

"Dr. Govinda "(Dr. Govinda Bahadur Thapa, "Financial System of Nepal" Development
division Patan multiple Campus, Lalitpur, Vol.3 1994, pp29-37.)
has expressed his view that the commercial banks including foreign joint venture banks
seem to be doing pretty well in mobilizing deposits likewise; loans and advances of these
banks are also increasing. But compared to the high credit needs particularly by the
newly emerging industries, the banks still seem to lack of adequate funds. The banks are
increasing their lending to non-traditional sectors along with the traditional sectors.
Out of the eleven, commercial banks (excluding two recently opened regional
commercial banks) Nepal bank Ltd. and Rastriya Banijya Bank are operating with a
nominal profit, the later turning towards negative from time to time. Because of non-
recovery of accrued interest, the margin between interest income and interest expenses is
decline. Because of these two local banks, in traditional off balance sheet operations,
these banks have not been able to increase their income from commission and discount.
On the contrary, they have got heavy burden of personal and administrative overheads.
Similarly, due to accumulated overdue and defaulting loans, profit position of these banks
has been seriously affected.
On the other hand the foreign venture banks have been functioning in an extremely
efficient way. They are making huge profit year after and have been distributing large
amount of bonus and dividends to its employees and shareholders. Because of their
effective persuasion for loan recovery, overdue and defaulting loans have been limited
resulting in high margins between interest income and interest expenses. Similarly,
concentration of these banks to modern off- balance sheet operations and efficient
personnel management have added to the maximization of their profits.
At the end of this article, he concludes that by it's very nature of the public sector, the
domestic banks couldn't compete with the private sector banks, so only remedy to the
problems of these banks, as the government decided, is to hand over the ownership as
well as the management of these banks to the private banks.
Dr. Pradhan. ( Delhi, 2005) In his research, "Financial management practices in
Nepal.He has studied about the major feature of financial management in Nepal. To
address his issue, a survey of 78 enterprises was carried out by distributing a multiple
questionnaire, which contained questions and various aspect of financial management
practices in Nepal.
He found that among the several finance functions, the most important finance function
appeared to be working capital management. The finding reveals that banks and retained
earning are the two most widely used financing sources. Most enterprises do not borrow
from one bank only and they do switch between banks to whichever offers best interest
rates. Most enterprises find that banks are flexible in interest rates and covenants. He
further found that among the banks loans, bank loans of less than one year are more
popular in public sector where as bank loans of 1-5 years are more popular in private
sector. In periods of tight money, the majority of private sector enterprises fell that back
will treat all firms equally while public sector does not feel so. Similarly he concluded
that the majority of enterprises in trade sector find that banks, interest rate is just right
while the majority in non-trade sector find that the same is one higher side of
profitability, safety, liquidity, productivity and social responsibility. To overcome this
problem, he has suggested, "commercial banks should take their investment function with
proper business attitude and should perform lending and investment operation efficiently
with proper analysis of the projects.
Dr. Sunity, in her research, Investment planning of commercial banks in Nepal.( Ph.D.
Thesis-1993), has made remarkable efforts to examine the investment planning of
commercial banks in Nepal. On the basis of the study she concludes that bank portfolio
(loans and investments) of commercial banks has been influenced by the variable
securities rates. Investment planning of commercial banks in Nepal is directly traced to
fiscal policy of government and heavy regulatory procedure of the central bank (NRB).So
the investment are not made in professional manner. Investment planning and operation
of commercial banks in Nepal has not been found satisfactory in terms
Dr. Sunity (2005) in her article, "Lending operation of commercial bank of Nepal and it's
impact on GDP.
has presented with the objectives to make an analysis of contribution of commercial
banks, lending to the Gross Domestic Product ((GDP) of Nepal. She has set hypothesis
that there has been positive impact of lending of commercial banks to the GDP. In
research methodology, she has considered GDP as the dependent variable and various
sector of lending Viz. Agriculture industrial, commercial, service and general social
sectors as independent variables. A multiple regression technique has been applied to
analyze the contribution.
The multiple analyze has shown that all the variables except service sector lending has
positive impact on GDP. Thus, in conclusion she has accepted the hypothesis i.e. there
has been positive impact on GDP and also she has accepted the hypothesis i.e. there has
been positive impact by the lending of commercial banks in various investment.
Mr. Bohara (2011), in his thesis," A comparative study on the financial performance of
Nepal A rb Bank and Nepal Indosuez Bank Ltd.He had made endeavor to examine the
comparative financial performance of NABL and NIBL in terms of their liquidity,
activity, and profitability along with other parameters. He has concluded that bank's
performance con not be judged solely in terms of profit by maintaining adequate liquidity
and safety position.
But it should also be evaluated on the ground of the contribution; it has made to the
community, government and national economy or on the social and national priority
discharged by banks. This means the banks should come forward with national priority
tasks, i.e. more deposit collection resource mobilization. The tasks are possible when they
expand branches, more employment opportunities, service to more customers, developing
skills and expertise in local staff’s satisfaction on profit earning and exchange of
autonomy provided by them. The accountability can be discharged by following their
rules, regulations, instructions, directives and priorities.
Mr.Kishi (2007), in his thesis paper, “A complete study on the financial performance of
Nepal Indousez Bank Ltd. (NIBL) and Nepal Graindlays Bank Ltd. (NGBL). Has mainly
Mr. found that NGBL's loan and advance to deposits ratio are significantly lower than
that of NIBL. NGBL is recommended to follow liberal lending policy to invest more
portions of deposits in loan and advances.
He has further stated that both the banks should not highly prefer the government
securities to invest their funds because of low interest rate on such securities but they are
recommended to boost up their campaigns of deposit mobilization and credit
disbursement in rural areas preferring priority sector, too.
In time of research of secondary sources if found that some student from T.U. and
other management campus have conducted several thesis work. Some of them as
are supposed to be relevant for this study are presented below.
Bohara B.R, in this thesis paper, "A comparative indosuez Bank limited has
made endear to examine the comparative financial performance (during period of
FY 1986/87 to 1990/91) of NABIL and NIBL in terms of their liquidity, activity,
and profitability along with other parameters. He has concluded per share, tax per
share, net profit, total deposit, total years of the study period has shown
improvement than that of NABIL.
N.M. Pradhan, in his thesis paper, "A study on investment policy of Nepal Arab
Bank Ltd. has emphasized that there is a greater relationship between deposits
and loan and advances. In his six years period study i.e. from 1972 to 1977 he
concluded that though loan and advances as well as deposits are in increasing
trend, their increase is not in a proportionate manner. His recommendation was to
grant the loans and advances without it's lengthily process He has suggested
enhancing banking transaction unto rural of the sector of the kingdom.
Karmacharya M. N, in this thesis paper "A study on the deposits mobilization
by the Npal Bank Ltd. During eight years study periods. (i.e. from 1970 to 1977)
has concluded that the utilization side of Nepal Bank Ltd. is weak as compare to
the collection of resources. He has mentioned that the bank has successfully
maintained its liquid assets position but couldn't mobilize its resource efficiently.
He has suggested to set-up more banking branches to increase the deposit
collection and long-term as well as short term credit. He has recommended not to
consider security factor only but to provide loan to genuine projects without
security,
Uttam raj panta, in his thesis paper, "A study of the commercial Banks' deposits
and its utilization has made an attempt to highlight the discrepancy between
resource collection and resource utilization. He concluded that commercial banks
failure in resource utilization is the to their lending confined for short term only
so he recommended that commercial banks should give emphasis also on long
term leading for better utilization of the deposits.
Mrs. Ramala Bhattari, in her thesis paper "Lending policy of commercial banks
in Nepal" has examined the lending policy of the commercial banks. She has
concluded that efficient utilization of resource is more important than the
collection of the same. Lower investment means lower capital formation that
hampers economic development of the people and the country. So the
recommended that banks should give emphasis on efficient utilizations of
resources.
Mr. Raja Ram Khadka, in his thesis paper. "A study on the investment policy of
Nepal Arab Bank Ltd in comparison other joint venture Banks in Nepal" He has
compared investment policy of Nepal Arab Bank Ltd. with Nepal Grindlays Bank
Ltd. and Nepal indosuez Bank Ltd. His study is based on five years period from
1992 to 1996. He has taken only two banks to compare the investment policy of
NABIL among thirteen commercial Banks in Nepal. Mr. Khadka has suggested
the joint venture banks to be careful in increasing profit in real sense to maintain
the confidence of shareholders, depositors and customers. He has strongly
recommended NABIL to utilising risk assets and shareholders funds to gain
highest profit margin reduce its expenses, and collect cheque fund for more
profitability. He has recommended investing its fund in different sector of
investment and administering various deposit schemes, give cheque scheme,
house building deposits scheme etc.
Thapa.S,(BS 2006) in her thesis paper "A comparative study on investment
policy of Nepal Bangladesh bank Ltd. and other joint ventures bank of Nepal"
She has compared the investment activities NBBL with only two joint venture
bank i.e. Nepal Arab Bank ltd and Nepal Grindlays Bank Ltd. by taking five
years data. She has recommended in two way, first statement recommendation
and second theoretical recommendation. In statement recommendation, she has
suggested about investment in government securities, OBS operation loan
recover act, sound credit collection policy, project oriented approach, effective
portfolio management, innovative approach to bank marketing and banking
facilities. In theoretical recommendation she has suggested about liberal lending
policy and cost management strategy.
In this section, the review of legislative framework (environment) under which the
commercial banks are operating has been discussed. This legislative environment has
significant impact on the commercial bank's establishment, their mobilization and
utilization of resources. All the commercial banks have to conform to the legislative
provisions specified in the commercial bank Act. 2031 and the rules and regulations
formulated to facilitate the smooth running of commercial banks. The preamble of Nepal
Bank act 1994 clearly states the need of commercial bank in Nepal, " In the absence of
any bank in Nepal the economic progress of the country was being hampered and causing
inconvenience to the people and therefore with the objective of fulfilling that need by
providing services to the people and for the betterment of the country, this low is hereby
promulgated for the established of the bank and its operation"
As mentioned in this act, commercial banks will help in banking business by opening its
branches in the different parts of the country under the direction of NRB. The main
function of commercial banks established under this act will be, exchange of money, to
accept deposits and give loan to commercial and business activities.
NRB rules regarding fund mobilization of commercial bank
To mobilization bank's deposit in different sectors of the parts of the nation to prevent
them from the financial problems, central bank (NRB) may establish a legal framework
by formulating various rules and regulations (prudential norms). These directive must
have direct or indirect impact while making decision of discuss those rules and regulation
which are formulation by NRB in terms of investment and credit to priority sector,
deprived sector, other institution, single borrower limit, CRR, loan loss provision, capital
adequacy ratio, interest spread, productive sector investment. A commercial bank is
directly related to the fact that how much fund must be collected as paid to expand the
branch and counters, how much flexible and helpful the NRB rules are also important.
But we discuss only those, which are related to investment function of commercial banks.
The main provisions, established by NRB in the form of prudential norms in above
relevant area are briefly discussed here under.
i) Provisions for investment in the deprived sector
Nepal Rastra Bank has allowed banks and financial institutions to categorize share
investments made in various micro finance institutions as loans issued to the deprived
sector.Currently, only institutional share investments made by commercial banks and
financial institutions in category ´D´ financial institutions can be labeled as deprived
sector loans. As per the Nepal Rastra Bank´s provision, commercial banks have to
channel at least three percent of total loans to the deprived sector. The proportion stands
at 2.5 percent and 2 percent for development banks and finance companies, respectively.

ii) Provision for credit to the priority sector

NRB requires commercial banks to extend loan and advances, amounting at least to 12
percent of their total outstanding credit to the priority sector. Commercial banks credit to
the deprived sector is also a part of priority sector credit. Under priority sector, credit to
agriculture, credit to the cottage and small industries and credit to service are counted
commercial banks' loan to the co-operatives licensed by the NRB is also to be computed
as the priority sector credit from the fiscal year 2011/12 onwards.

iii) Provision for the investment in productive sector

Nepal, being a developing country needs to develop infrastructure and other primary
productive sector etc. For this, NRB has directed commercial banks to extend at least 40
percent of their total credit to the productive sectors. Loans to priority sector, agriculture
sector, and industrial sector have to be included in productive sector investment.

iv) Provision for the single borrower credit limit

With the objective of lowering the risk of over concentration of bank to a few big
borrowers and also to increase the access of small and middle size borrower to the bank
loans, NRB directed CBs to set an upper limit on the amount of loan financed to an
individual, firm, company or group companies. According to this, CBs are required not to
exceed the single borrower limit of 35 percent in the case of fund-based credit and 50
percent, in the case of non-fund based credit such as the letter of credit, guarantee,
acceptance letter commitment has been fixed is a proportion of capital funds of bank.
v) Directives to raise capital funds (CAR)
The commercial banks are allowed to include paid up capital and reserves for meeting the
minimum capital requirement but they have to deduct the net loss from such funds if they
are in loss.Besides this, following the BASLE capital Adequacy Accord, NRB has
directed commercial banks to maintain at least 8 percent capital adequacy ratio (CAR) of
their risk weighted assets (RWA) and off balance sheet transaction i.e. letter of credit,
letter of acceptance, bonds, guarantees etc. They are required to classify their capital
requirement into (1) core capital (Tier 1) and (2) supplementary capital (Tier 2) and
maintain at least 4 percent of their total capital in the form of core capital. As per the
provision, risk weighted assets (RWA) are to be calculated by classifying assets and
giving them different risk weights

vi) Cash Reserve Requirements (CRR)

To ensure adequate liquidity in the commercial banks, to meet the depositors demand for
cash at anytime and to inject the confidence in depositors regarding the safety of there
deposited funds, commercial banks are required to have maximum CRR. In this regard,
NRB has directed commercial banks to deposit minimum 8 percent of current and saving
and 6 percent of fixed deposits in the NRB as primary cash reserve the commercial banks
are further required to have 3 percent cash of total deposits in their own bank as
secondary risers.
vii) Loan classification and loss provision
With a view to improving the quality of assets of commercial banks NRB has directed
commercial banks to classify their outstanding loan and advances, investment and other
assets into six categories. The classification is done two ways. The loans of more than 1
lakh are to be classified as debt service charge ratio, repayment situation, financial
condition of borrower, management efficiency, quality of collateral. The loans of less
than 1 lakh have to be classified as per maturity period.Furthermore, NRB has directed
commercial banks to maintain certain reserves for loans so classified. Loan Loss
Providing has affected banks' capability to extend loans and made them risk averse in
issuing newer loans, particularly to the private sector and priority sector where the loan
default is high.

CHAPTER -III

RESEARCH METHODOLOGY

3.1 Introduction
In the earlier chapters, general background of commercial banks has been highlighted and
review of literature with possible reviews of relevant books articles, thesis and research
findings has also been discussed. This had equipped me with the inputs necessary for my
study and helped me to make choice of research methodology to support my study in
realistic term with sound empirical analysis. "Research methodology refers to the various
sequential steps to be adopted by a researcher in studying a problem with certain
objectives in view." In other words, research methodology describes the methods and
process applied in the entire subject of the study.
This chapter attempts to have an insight in to the investment policy by EBL. This will
help to evaluate and analyze investment performance of EBL in comparison to the BOK.
This study will seek the conclusion to the point that what position EBL has got in
comparison to the BOK and recommended the useful and meaningful points so that all
concerned can achieve something from this study. To accomplish the goal, the study the
research methodology described in this chapter.

3.2 Research Design

“A research design is the arrangement of condition for collection and analysis of data that
aims to combine relevance to the research with economy in procedure. (Rinchart and
Winston, 1962).
Research design is the plan, structure and strategy of investment so as to obtain answer
to research questions and to control variances. To achieve the objective of this study,
descriptive and analytical research design has been used.
Some financial and statistical tools have been applied to examine to facts and descriptive
techniques have been adopted to evaluate investment performance of EBL and compare it
with BOK.
Before conducting of research, research design makes easy to identify the problem
to report writing with the help of collection, tabulation, analysis and interpretation
of data.
3.3 Sources of Data
Mainly, the study is conducted on the basis of the secondary data. The data enquired for
the analysis are directly obtained from the balance sheet and P/L a/c of concerned banks'
annual reports. Supplementary data and information are collected from number of
institutions and regarding authorities like NRB, security exchange board, Nepal stock
exchange Ltd. Ministry and finance, budget speech of different fiscal years, economic
survey, Internet and national planning commission etc.
All the secondary data are compiled, processed and tabulated in the time series as per the
need and objectives. Formal and informal talks with the concerned authorities of the bank
were also helpful to obtain the additional information of the related problem.
Likewise, various data and information are collected from the economic journals,
periodicals, bulletins, magazines and other published and unpublished reports and
documents from various sources.

3.4 Populations and Sample

The limitation of time and unavailability of the relevant data has forced me to make
research on the few commercial banks, even though there are 32 commercial banks all
over the Nepal and their stocks are traded actively in the stock market. In this study
EBL's investment policy has been compared with the BOK, which is selected from the
population. The population is as follows:
1. Nepal Arab Bank Ltd.
2. Nepal Investment Bank Ltd.
3. Standard Chartered Bank Ltd.
4. Himalayan Bank Ltd.
5. Nepal SBI Bank Ltd.
6. Nepal Bangladesh Bank Ltd.
7. Everest Bank Ltd.
8. Bank of Kathmandu Ltd.
9. Nepal Credit and Commerce Bank Ltd.
10. Laxmi Bank Ltd.
11. Lumbini Bank Ltd.
12. Nepal Industrial & Commercial Bank Ltd.
13. Machhapuchhre Bank Ltd.
14. Kumari Bank Ltd.
15. Siddharatha Bank Ltd.
16. Nepal Bank Ltd.
17. Rastriya Banijya Bank.
18. NMB Bank.
19. Citizen Bank International
20. Bank of Asia Nepal.
21. Global bank Ltd.

From these samples, Everest Bank Ltd. has been selected and its data related to
investment performance are comparatively studied with the Bank of Kathmandu.

3.5 Method of Analysis

In this study, various financial, accounting has been used to achieve the objective of the
study. The analysis of data will be done according to the pattern of data available. Some
financial tools as ratio analysis and trend analysis have also been used for financial
analysis.
The various tools applied in this study, have been briefly presented as under:

3.5.1 Financial Tools

Financial tools are used to examine the financial strength and weakness of bank. In this
study financial tools like ratio analysis and financial statement analysis have been used.
3.5.1.1 Ratio Analysis
Financial ratio is the mathematical relationship between two accounting figures. "Ratio
analysis is a part of the whole process of analysis of financial statement of any business
or industrial concern especially to take output and credit decisions"( Kothari, K.C,
1984).Thus, ratio analysis is used to compare a firm's financial performance and status to
that of other firm's or to itself overtime. The qualitative judgment regarding financial
performance of a firm can be done with the help of ratio analysis.
Even though, there are many ratios, only those have been covered in this study, which are
related to the investment operation of the bank. This study contains following ratios.

3.5.1.1.1 Liquidity Ratios

Liquidity ratios are used to judge the ability of banks to meet its short-term liabilities that
are likely to mature in the short period. From them, much insight can obtain into present
cash solvency of the bank and its ability to remain solvent on the event of adversities. It is
the measurement of speed with which a bank's assets can be converted into cash to meet
deposit withdrawal and other current obligations.
The following ratios are evaluated under liquidity ratios:
A) Cash and Bank Balance to Total Deposit Ratio
This ratio shows the percentage of total deposit maintained as cash and bank balance
(including money at call) but the banks. Thus, it is calculated by dividing the latter by the
former.
B) Cash and Bank Balance to Current Deposit Ratio
This ratio shows the availability of bank high liquid or immediate funds to meet
unanticipated call on current deposit. It is calculated by dividing cash and bank balance
excluding money at call or short notice by current deposit.
C) Fixed Deposit to Total Deposit Ratio
Fixed deposit is the long term deposit that banks mobilize on investment, loans and
advances. That means it is long term financial resources. The higher proportion of fixed
deposit shows that the bank as less proportion of short term deposits in the total deposit.
This ratio is computed by dividing fixed deposit by total deposit.
D) Saving Deposit to Total Deposit Ratio
This ratio shows the proportion of saving deposit in total deposit. Saving deposit is short
term interest bearing deposit. It is calculated by dividing saving deposit by total deposit.
E) Nepal Rastra Bank Balance to Total Deposit Ratio
It is required that every commercial bank needs to keep certain percent of its total deposit
in NRB. This ratio shows the percentage of total deposit amount that requires holding in
NRB through the side of commercial bank.
3.5.1.2 Activity Ratios
The activity ratios are calculated to measure the efficiency of assets management of both
of banks EBL and BOK through the study period. The activity ratios are categorized as
below.

A) Loans and Advances (Including Bills Purchased & Discounted) to Total Deposit
Ratio
This ratio measures the extent to which the banks are successful to mobilize the total
deposit amount on loans and advances for generating profits. It is calculated by diving
loan and advance by total deposit.

B) Investment to Total Deposit Ratio

This ratio measures the mobilization of percentage amount of total deposit on investment.
These types of banks generally mobilize their funds by investing in different securities
issued by government and other financial and non-financial companies. A high ratio
indicates high success in utilization of funds. It is calculated by dividing the amount of
investment by the amount of total deposit.

C) Loan and Advance (Including Bills Purchased & Discounted to Total Assets Ratio
This ratio shows the percentage of total assets utilized on Loan and Advance (Including
Bills Purchased & Discounted). Loan and Advance (Including Bills Purchased &
Discounted) is one of the income generating assets of banks. It is calculated by dividing
loan and advance by total assets.
D) Interest Income to Total Income Ratio
This ratio measures the percentage of interest income to total income. The high ratio
indicates the high contribution made by the lending and investing activities and vice
versa. It is calculated by dividing interest income by total income extent to which total
assets of the banks are covered by that income generating assets. It is calculated by
dividing loans and advances by the total assets.

E) Earning Per Share

It measures the available profit to be equity shareholders on per share basis. It represents
what the owners are theoretically entitled to receive from the bank. It is calculated
dividing by net profit by No. of shareholders outstanding.
F) Interest Expenses to Total Expenses Ratio
One of the major expenses of bank is that which has to pay interest on the loan or
borrowing taken by the banks from different financial or non-financial institutions as well
as from different other sources. This ratio measures the proportion of interest expenses in
the volume of the total expenses. The high ratio indicates the low operational expenses
and vice versa and also indicates that the banks using the costly sources of funds. It is
calculated by dividing interest expenses by total expenses.
3.5.1.3 Capital Structure Ratio
There are mentioned following ratios which are calculated to measure capital structure of
the study banks.
A) Long term Debt to Shareholders Fund Ratio
Long term debt means the total amount of fixed deposit and loans from banks and
shareholders fund consist of general reserve, share premium and other reserves. This ratio
shows the proportion of outside long term liabilities to shareholders total funds. It is
calculated by dividing long term debt to shareholder fund.
B) Total Debt to Shareholders Fund Ratio
This ratio indicates the relationship between debt and equity i.e. outside fund and
shareholders fund, which are called external and internal equity. Total debts include fixed
deposit, saving deposit, current deposit and borrowing the other liabilities. It is calculated
by dividing total debt by shareholder fund.
C) Total Debt to Total Assets Ratio
This ratio mentions the proportion of total assets financed by total debts. The higher ratio
indicates a risky capital structure. From the creditors’ side, low ratio is preferable as it
represents security for them. This ratio is calculated by dividing the total debt by total
assets.
3.5.1.4 Profitability Ratios
This ratios measure the overall efficiency of the business. There are some ratios related to
profitability ratios which are presented as below.
A) Return on Equity Ratio
It is most commonly used ratio for measuring the return in owners’ investment. It reflects
the extent to which the banks have been successful in mobilizing their equity capital. The
higher ratio indicates better performance of the banks and vise versa. The ratio is
calculated as net profit after tax divided by shareholders equity.
B) Return on Total Assets Ratio
It measures the productivity of the assets as well as the relationship between the net profit
and assets. It provides the overall efficiency of the firm. It is computed by dividing net
profit by total assets.
C) Earning Per Share
It measures the available profit to be equity shareholders on per share basis. It represents
what the owners are theoretically entitled to receive from the bank. It is calculated
dividing by net profit by No. of shareholders outstanding.
3.5.1.5 Capital Adequacy Ratio
This ratio measures to analyze the sufficient amount of capital fund to total deposit, total
assets and deposit utilization of the bank.
A) Shareholders Fund to Total Deposit Ratio
Banks need to maintain a sufficient amount of total assets as capital fund or shareholders
fund. It is measured with the sufficiency of the former against the later.
B) Shareholders Fund to Total Assets Ratio
Banks need to maintain a sufficient amount of total assets as capital fund or shareholders
fund. It is measured with the sufficiency of the former against the later. It is calculated by
dividing total shareholder fund by total deposit.
3.5.1.6 Deposit Utilization of EBL and BOK
It measures the collection of deposit and the efficient utilization of the deposit ratio. It
shows the efficiency of performance and reliability of the bank. Bank has to pay interests
on deposit and also to pay dividends to their shareholders. So, earning more and more
interest through deposit utilization in the productive investment opportunities relating to
industries, commerce, foreign trade, tourism, service business etc. will ultimately
contribute to national economy. Thus, collection of deposit and utilization of the same
can be regarded as two side of a coin.
3.5.1.7 Statistical Tools
Some important tools are used to achieve the objectives of his study. In this study
statistical tools such as coefficient of correlation between different variable, trends
analyses of important variables have been used which are as follows,
3.6 Trend Analysis (The Least-Square Method)
Trend analysis describes the average relationship between two series where the one series
relates to time and other series to the value of a variable. It generally shows that the line
of best-fit or straight line is obtained or not. The line of the best fir describes the change
in a given series accompanying a unit change in time. In other words, it gives that best
possible mean value of dependent variable for a given value of independent variable.
For the calculation of the “line of best fit” following equations should be kept in mind.
Yc = a + bx
Where, Yc = The estimated value of ‘Y’ for given value of x obtained from the line of
regression of Y on x.
a = “Y-intercept” or mean of ‘Y’ value.
b = Slope of trend line or rate of change.
x = The variable in times series analysis represents time.
There are two normal equations estimating for ‘a’ and ‘b’ are;
∑Y = na + b∑x..........(i)
∑XY=a∑x + b∑x²……….(ii)
Since, ∑x= 0

Then the above equation becomes,

a=Y / n
 and b=
 XY
X 2

The term best fit interpreted in accordance with the principle of least square which
consist in minimizing the sum of the square residual or errors of estimate i.e. the
deviations between the given observed value of the variables and their corresponding
estimated values as given by the line of best fit.

3.6.1 Arithmetic Mean

Arithmetic mean is the sum of all observations divided by the number of
observations. The arithmetic mean is denoted by ( X ). It is computed as:

Arithmetic Mean ( X ) = f
n
Arithmetic Mean is calculated to find the mean of the financial ratio.

3.6.2 Standard Deviation

Standard Deviation is calculated to measures dispersion. It is computed as:

S.D. (  ) = (X  X ) 2

3.6.3 Co-Variance (C.V.)

Co-Variance is calculated to find variance from the mean. It is computed as:

C.V. = X

3.4 Co-efficient of Correlation Analysis

The correlation coefficient determines the relationship between two properties. This
analysis identifies and interprets the relationship between the two or more variables. In
the case of highly correlated variables, the effect on one variable may have effect on other
correlated variable. When two elements have zero correlation with other they are
unrelated in anyway and have zero variance. Positive correlation implies positive
covariance.
Symbolically,
 n XY   X  Y
r=
n X 2
 ( X ) 2 . n Y 2  ( Y ) 2

Where, n= number of Observation in series X and Y.

∑X = sum of observation in series X.
∑Y = sum of observation in series Y.
∑X² = sum of square observation in series X.
Y² = sum of square observation in series Y.
∑XY = sum of the product of observation in series X and Y.
The value of correlation of coefficient ( r ) lies between -1 to +10, i.e. -1≤ r ≤ 1.
Karl-Pearson’s co-efficient of correlation has been used to find out the relationship
between the deposit and loan and advances plus Investment made by the banks.

CHAPTER–IV
DATA PRESENTATION & ANALYSIS OF DATA

In the earlier chapters, general background and research methodology have been
highlighted along with review of relevant literature pertinent to this purpose study.
Now it comes to the most important component of the study, which deals to the
analysis of investment policy of the EBL, BOK. The most significant variables such
as loan & advances, total assets, total deposits, total working funds, net profit, outside
assets, current assets, current liabilities etc. are taken into consideration in the
analysis and are viewed as key variables affecting investment policy more
significantly. The whole analysis is based upon financial as well as statistical analysis
in addition to interpretation of results to find existing problems and prospects of the
banks. Secondly, data are analyzed for this purpose, which are abstained from
financial statements and annuals reports of the concerned banks.

When obtained data are not analyzed properly, they are meaningless and cannot
convey any sensible reasoning to us. As such, they should be analyzed with the help
 of different tool & techniques so that it could provide us the real scenarios. Therefore,
this study has been divided into two parts to demonstrate the prevailing investment
practices and to draw an acute conclusion regarding the investment policies of EBL,
BOK.

4.1. Financial Analysis

We have already mentioned financial ratios in the third chapter. Now this part deals to
analysis & interpretation of various financial ratios which shows investment policies
& practices of EBL, BOK . These ratios are calculated as under Liquidity Ratio.

4.1.1. Liquidity Ratio

4.1.1.1 Cash and Bank Balance to Total Deposit Ratio
This ratio shows the percentage of total deposit maintained as cash and bank balance
(including money at call) but the banks. Thus, it is calculated by dividing the latter by
the former. T is shown in the Table No.4.1 bellow.
Table No. 4.1
Cash and Bank Balance (Including M/C) to Total Deposit Ratio
(In Rs.00000)
Bank Everest Bank Bank of Kathmandu
FY
Cash and Total Ratio in Cash and Total Ratio
Bank Deposit % Bank Deposit in %
Balance Balance
2007/08 82,299 239,762 34.30 53,674 158,337 33.90
2008/09 94,469 333,229 28.30 56,506 180,839 31.20
2009/10 109,150 369,323 29.60 45,518 203,158 22.40
2010/11 104,899 411,279 25.50 54,237 210,184 25.80
2011/12 170,099 500,061 34.00 75,087 249,914 30.00
Average 30.30 28.70
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12
From the above table and chart the ratio is in fluctuating trend for EBL and in decreasing
trend except in the FY 2011/12 for BOK.The average ratio of EBL is greater than BOK
that is 30.30% and 28.70% respectively.
Comparison the both bank ratio, EBL is higher than except BOK FY 2010/11 and
2011/12), which shows that BOK is holding more percentage of cash and bank
balance against total deposit amount. It implies better liquidity position of the former
in comparison to the later.
4.1.1.2 Cash and Bank Balance (excluding M/C) to Current Deposit Ratio
This ratio shows the availability of bank high liquid or immediate funds to meet
unanticipated call on current deposit. It is calculated by dividing cash and bank
balance excluding money at call or short notice by current deposit which is mentioned
as below.
Table No. 4.2
Cash and Bank Balance (excluding M/C) to Current Deposit Ratio
(In Rs 00,000)
Bank Everest Bank Bank of Kathmandu
FY
Cash and Current Ratio Cash and Current Ratio in
Bank Balance Deposit in % Bank Balance Deposit %
2007/08 8,229 8,314 98.99 5,367 6,031 88.99
2008/09 9,446 10,304 91.68 5,650 8,444 66.92
2009/10 10,915 12,796 85.30 4,552 13,595 33.49
2010/11 10,489 13,915 75.38 5,424 16,042 33.81
2011/12 17,009 17,611 96.59 7,509 16,844 44.58
Average 89.59 53.56
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12
 It is observed that EBL’s ratio s in fluctuating trend and its ratio is higher than BOK
in each year except FY 2011/12 the average ratio is found to be 89.59% that is higher
than BOK whose average ratio is 53.56 %. A relatively high ratio is considered as an
indication that banks are liquid. For inter firm comparison, the firm with higher ratio
has better liquidity. So, EBL, s liquidity position in regard to this better than of BOK.
However, very high ratio indicates idle assets with nothing to earn.

4.1.1.3 Fixed Deposit to Total Deposit Ratio

Fixed deposit is the long term deposit that banks mobilize on investment, loans and
advances. That means it is long term financial resources. The higher proportion of
fixed deposit shows that the bank as less proportion of short term deposits in the total
deposit. This ratio is computed by dividing fixed deposit by total deposit.

Table No. 4.3

Fixed Deposit to Total Deposit Ratio (In Rs.00,000)
Bank Everest Bank Bank of Kathmandu
FY
Fixed Total Ratio in Fixed Total Ratio in
Deposit Deposit % Deposit Deposit %
2007/08 108,983 239,762 45.52 73,893 158,337 46.71
2008/09 117,315 333,229 35.23 89,719 18,839 49.62
2009/10 147,953 369,323 40.21 71,404 203,158 35.17
2010/11 172,197 411,279 41.81 83,100 210,184 39.52
2011/12 241,617 500,061 48.33 101,644 249,914 40.61
Average 42.22 42.32
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12
From the above table, the ratio of EBL is higher than ratio of BOK in each year. It means
EBL is better than BOK with regard to fixed deposit against total deposit. EBL has more
resources to be used in productive and long term benefit sectors than BOK. However,
more amount of fixed deposit also bears more percentage of interest payable by the bank.
The higher ratio of EBL is 48.33%in the year 2011/12 and lowest is 35.23 % in the year
2008/09. Other hand, the highest and lowest ratio of BOK is 49.62% and 35.17% in the
year 2008/09 and 2009/10 respectively.
4.1.1.4 Saving Deposit to Total Deposit Ratio
This ratio shows the proportion of saving deposit in total deposit. Saving deposit is
short term interest bearing deposit. It is calculated by dividing saving deposit by total
deposit which is presented in the table no. 4.5.

Table No. 4.5

Saving Deposit to Total Deposit Ratio (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
Saving Total Ratio in Saving Total Ratio in %
Deposit Deposit % Deposit Deposit
2007/08 53,841 239,762 22.45 35,489 158,337 22.41
2008/09 87,354 333,229 26.21 42,500 180,839 23.50
2009/10 105,580 369,323 28.58 56,685 203,158 27.90
2010/11 135,306 411,279 32.89 65,738 210,184 31.27
2011/12 155,068 500,061 31.00 69,474 249,914 27.79
Average 28.23 26.57
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/1
In this study of saving deposit to total deposit clearly observed that the trend of EBL is
increasing and the highest and lowest ratio is 32.89% and 22.45% in FY 2010/11 and
2007/08 respectively. But the ratio of BOK is the highest ratio of BOK is 31.27% in the
FY 2010/11.
The average ratio of both banks (EBL and BOK) is 28.23% and 26.57% respectively.
Saving deposit is the short term obligation of the bank as it can be withdraw with or
without prior notice. So, in the regard, while comparing the average ratio of two banks,
EBL is the better position than BOK as its average ratio is higher than BOK.
4.1.1.5 Nepal Rastra Bank Balance to Total Deposit Ratio
It is required that every commercial bank needs to keep certain percent of its total
deposit in NRB. This ratio shows the percentage of total deposit amount that requires
holding in NRB through the side of commercial bank which is shown in the table 4.5.
Table No. 4.5
NRB Balance to Total Deposit Ratio (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
NRB Total Ratio in NRB Total Ratio in
Balance Deposit % Balance Deposit %
2007/08 10,809 239,762 4.50 60,605 158,337 3.82
2008/09 47,872 333,229 14.36 63,241 180,839 7.32
2009/10 56,251 369,323 15.23 68,758 203,158 3.38
2010/11 47,063 411,279 11.44 64,169 210,184 3.05
2011/12 81,59 8 500,061 16.31 69,708 249,915 7.88
Average 12.37 5.09
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12
From the above table, it is shown that both banks have fluctuating trend ratio. The highest
and lowest ratios of both banks are 16.31% and 4.50%, and 7.88% and 3.05% in the FY
2011/12 and 2007/08, and 2011/12 and 2010/11 of EBL and BOK respectively. Similarly,
the average ratio of EBL and BOK is found to be 12.37% and 5.09% respectively.
4.1.2 Activity Ratios
The activity ratios are calculated to measure the efficiency of assets management of
both of banks EBL and BOK through the study period. The activity ratios are
categorized as below.
4.1.2.1 Loans and Advances (Including Bills Purchased & Discounted) to Total
Deposit Ratio
This ratio measures the extent to which the banks are successful to mobilize the total
deposit amount on loans and advances for generating profits which is calculated as
shown below.
Table No.4.6
Loans and Advances to Total Deposit Ratio (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
Loan and Total Ratio in Loan and Total Ratio in
Adv. Deposit % Adv. Deposit %
2007/08 183,390 239,763 76.48 124,626 158,337 78.70
2008/09 238,846 333,229 71.67 146,473 180,839 80.99
2009/10 275,563 369,323 74.61 166,649 203,158 82.02
2010/11 310,576 411,279 75.51 174,682 210,184 83.10
2011/12 359,109 500,061 71.81 188,139 249,915 75.28
Average 74.16 80.25
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12
From the above table, it is observed that the ratio of EBL increases up to in the FY
2010/11. It decreases in the next FY 2011/12. The ratio of BOK seems that decreases
trend to FY 2008/09 and then and then increases till the FY 2010/11 and again decrease in
the FY 2011/12. And final FY increases which means it is fluctuating trend

The highest ratio of EBL and BOK are 76.48% and 83.10% in FY 2007/08 and
2010/11respectively. The lowest ratio of these banks is 71.67% and 75.28% in the FY
2008/09 and 2011/12 respectively. Comparing the average of these banks, BOK is more
successful in deposit utilization as main income generating assets that is loan and
advances (including bills purchased and discounted).

4.1.2.2 Total Investment to Total Deposit Ratio

This ratio measures the mobilization of percentage amount of total deposit on
investment. These types of banks generally mobilize their funds by investing in
different securities issued by government and other financial and non-financial
companies. A high ratio indicates high success in utilization of funds. It is calculated
by dividing the amount of investment by the amount of total deposit which is
presented as given below.
 Table No.4.7
Total Investment to Total Deposit Ratio(In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
Investment Total Deposit Ratio in Investment Total Deposit Ratio in %
%
2007/08 50,596 239,763 21.10 32,041 158,337 20.24
2008/09 59,485 333,229 17.85 27,836 180,839 15.39
2009/10 50,083 369,323 13.56 32,692 203,158 16.09
2010/11 77,439 411,279 18.83 42,866 210,185 20.39
2011/12 7,8,636 500,061 15.73 52,467 249,915 20.99
Average 17.41 18.62
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

Above the table no. 8, it is observed that the ratio of EBL decreases in up to FY 2009/10
and increases to next years and again decrease in FY 2011/12. On the other hand, the
ratio of BOK decreases in the FY 2008/09 and then increases till FY 2011/12 in final
FY.The high ratio shows the ability of the bank to invest its deposit in productive sector.
From the above table, it is indicated that BOK has utilized its deposit more effectively on
investment than EBL.
4.1.2.3 Loan and Advance (Including Bills P & Dis) to Total Assets Ratio
This ratio shows the percentage of total assets utilized on Loan and Advance
(Including Bills Purchased & Discounted). Loan and Advance (Including Bills
Purchased & Discounted) is one of the income generating assets of banks. This ratio
measures the extent to which total assets of the banks are covered by that income
generating assets. It is calculated by dividing loans and advances by the total assets
which is shown in the given below.
 Table No.4.8
Loans and Advances to Total Assets Ratio (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
Loan and Total Ratio in Loan and Total Ratio in
Adv. Assets % Adv. Assets %
2007/08 183,391 271,493 67.55 124,627 177,219 70.32
2008/09 238,847 369,169 64.70 146,473 204,960 71.46
2009/10 275,564 413,828 66.59 166,641 233,962 71.23
2010/11 310,577 462,362 67.17 174,682 247,578 70.56
2011/12 359,109 558,133 64.34 188,139 288,820 65.14
Average 66.10 69.74
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table, it is observed that the highest and lowest ratio of EBL is 67.55%
and 64.34% in the FY 2007/08 and 2011/12 respectively and the average ratio of it is
66.10%. The highest and lowest ratio of BOK is 71.46% and 65.14% in the FY 2008/09
and 2011/12 respectively and the average ratio of it is 69.74%.
Comparing average ratio of both banks, BOK seems to have better position than EBL.
4.1.2.4 Interest Income to Total Income Ratio
This ratio measures the percentage of interest income to total income. The high ratio
indicates the high contribution made by the lending and investing activities and vice
versa. It is calculated by dividing interest income by total income which is mentioned
in the table no.10 as below.

Table No. 4.9

Interest Income to Total Income Ratio (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
 Interest Total Ratio in Interest Total Ratio in
Income Income % Income Income %
2007/08 15,487 22,099 79.12 10,342 18,629 83.66
2008/09 21,869 38,449 84.36 13,478 32,148 80.10
2009/10 31,025 45,179 81.16 18,709 47,426 81.88
2010/11 43,310 55,929 82.95 23,868 63,832 82.82
2011/12 59,599 69,697 82.03 26,209 85,353 78.09
Average 82.72 81.30
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table, it is observed that the ratio of EBL is the highest in the FY 2008/09
and lowest in the FY 2007/08 and the average ratio of it bank is 82.72%. It means that in
the total volume of income of EBL, the interest contributes 82.72%. All year’s the ratio of
EBL is near to its average ratio. On the other hand, the highest ratio of BOK is 83.66% in
FY 2007/08 and the lowest ratio of its 82.82% in FY 2011/12 but the average ratio is
found to be 81.30%.

Comparing the average ratio of both banks, EBL is higher than the BOK which means
EBL has greater of dependency on funds based activities than BOK.

4.1.2.5 Interest Expenses to Total Expenses Ratio

One of the major expenses of bank is that which has to pay interest on the loan or
borrowing taken by the banks from different financial or non-financial institutions as well
as from different other sources. This ratio measures the proportion of interest expenses in
the volume of the total expenses. The high ratio indicates the low operational expenses
and vice versa and also indicates that the banks using the costly sources of funds. It is
calculated by dividing interest expenses by total expenses which is shown in the table no.
4.11 as below.
Table No.4.10
Interest Expenses to Total Expenses Ratio (In Rs 00,000)
Bank Everest Bank Bank of Kathmandu
FY
Interest Total Ratio in Interest Total Ratio in %
Expenses Expenses % Expenses Expenses
2007/08 6,326 10,524 60.10 4,175 7,286 57.30
2008/09 10,128 21,918 46.21 5,631 9,899 54.86
2009/10 15,728 37,517 41.92 9,029 19,966 45.22
2010/11 25,359 49,859 50.86 12,188 25,869 47.11
2011/12 28,733 58,927 48.76 14,845 39,499 37.58
Average 49.57
48.41
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table no. 4.10, it is observed that the ratio of EBL is in fluctuating trend
and decreasing trend of BOK. The highest and lowest ratio of EBL is 60.10% and 41.92%
in the FY 2007/08 and 2009/10 respectively. The average ratio of EBL and BOK is found
to be 49.57% and 48.41% respectively. On the other hand, the highest ratio and lowest
ratio of BOK is 57.30% and 37.58% in the FY 2007/08 and 2011/12 respectively.

4.1.2.6 Capital Structure Ratio

There are mentioned following ratios which are calculated to measure capital
structure of the study banks.

4.1.2.7 Long term Debt to Shareholders Fund Ratio

Long term debt means the total amount of fixed deposit and loans from banks and
shareholders fund consist of general reserve, share premium and other reserves. This
ratio shows the proportion of outside long term liabilities to shareholders total funds
which is presented as below.

Table No. 4.11

Long term Debt to Shareholders Fund Ratio (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
F.Y
Long term Shareholder Ratio in Long term Shareholder Ratio in
Debt s Fund % Debt s Fund %
2007/08 42,846 5,194 715.28 40,485 5,272 626.07
2008/09 47,116 7,309 510.76 39,589 7,202 376.57
2009/10 47,947 8,128 456.05 39,909 7,791 343.79
2010/11 48,980 8,803 425.99 42,767 8,507 350.35
2011/12 54,039 9,696 442.30 48,788 9,207 399.44
Average 510.07 419.24

Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table no. 4.11, it is observed that the ratios of both banks are declining
except in FY 2010/11 for EBL and FY2009/10 to BOK. The highest and lowest ratio of
EBL is 715.28% and 425.99% in the FY2007/08 and 2010/11 respectively. Similarly, the
highest and lowest ratio of BOK is 626.07 % and 343.79% in the FY 2007/08 and
2009/10 respectively.
The average ratio of EBL is higher than BOK i.e. 510.07 % and 419.24% respectively.

4.1.2.8 Total Debt to Shareholders Fund Ratio

This ratio indicates the relationship between debt and equity i.e. outside fund and
shareholders fund, which are called external and internal equity. Total debts include
fixed deposit, saving deposit, current deposit and borrowing the other liabilities. The
total debt-equity ratio of both banks is shown in the table no. 4.13 below.
Table No.4.12
Total Debt to Shareholders Fund Ratio (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
Total Shareholders Ratio in Total Shareholders Ratio
Debt Fund % Debt Fund in %
2007/08 41,480 5,194 1533 49,428 5,272 1919
2008/09 52,150 7,309 1144 65,011 7,202 1121
2009/10 68,993 8,128 1214 82,811 7,791 1185
2010/11 80,763 8,803 1312 78,365 8,507 1359
2011/12 94,394 9,696 1393 88,657 9,207 1201
Average 1360 1450
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12
From the above table no. 4.13, it is observed that the ratios of both banks are fluctuating
trends. The highest and lowest ratio of EBL is 1533% and 1144% in the FY 2007/08 and
2008/09 respectively. Similarly, the highest and lowest ratio of BOK is 1919 % and
1121% in the FY 2007/08 and 2008/09 respectively.

The average ratio of both banks is 1360.39% and 1450% of EBL and BOK respectively.
The proportion of debt financing for both banks are high compared to equity financing. It
is a risky to use more debts but at the same side, it is a good indicator that the both banks
are using more debts than equity.
4.1.2.9 Total Debt to Total Assets Ratio

This ratio mentions the proportion of total assets financed by total debts. The higher
ratio indicates a risky capital structure. From the creditors’ side, low ratio is
preferable as it represents security for them. This ratio is calculated by dividing the
total debt by total assets as shown in the below of table no. 4.13.

Table No.4.13
Total Debt to Total Assets Ratio (In Rs.00,000)
Bank Everest Bank Bank of Kathmandu
F.Y
Total Debt Total Ratio in % Total Debt Total Ratio in %
Assets Assets
2007/08 68,993 50,058 93.88 82,811 86,083 95.05
2008/09 80,763 59,485 91.86 78,365 83,566 91.82
2009/10 94,394 69,085 92.39 88,657 94,448 92.22
2010/11 109,283 78,841 92.92 108,456 114,963 93.15
2011/12 127,225 96,187 90.93 107,134 118,571 89.39
Average 92.83 93.13
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table no. 4.13, it is observed that the ratio of EBL and BOK decreases in
the FY 2008/09 and it increases in the next three FY and decreases in last year. The
highest and lowest ratio of EBL is 93.88% and 90.93% in the FY 2007/08 and 2011/12
respectively. Similarly, the highest and lowest ratio of BOK is 95.05% and 89.39% in the
FY 2007/08 and 2011/12 respectively.

The average ratio of both banks is 92.83% and 93.13% of EBL and BOK respectively.
The proportion of assets financing for both banks are high compared to borrowing
financing.

4.1.3 Profitability Ratios

This ratios measure the overall efficiency of the business. There are some ratios
related to profitability ratios which are presented as below.

4.1.3.1 Return on Equity Ratio

It is most commonly used ratio for measuring the return in owners’ investment. It
reflects the extent to which the banks have been successful in mobilizing their equity
 capital. The higher ratio indicates better performance of the banks and vice versa. The
ratio is calculated as net profit after tax divided by shareholders equity.

Table No.4.14
Return on Equity Ratio (In Rs 00,000)
Bank Everest Bank Bank of Kathmandu
FY
Net Profit Shareholders Ratio in Net Shareholders Ratio in
Fund % Profit Fund %
2007/08 689 5,194 13.26 828 5,272 15.70
2008/09 807 7,309 11.04 784 7,202 10.88
2009/10 944 8,128 11.61 887 7,791 11.38
2010/11 1,093 8,803 12.41 1,084 8,507 12.74
2011/12 1,272 9,696 13.11 1,071 9,207 12.63
Average 12.29 12.67
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table no. 4.14, it is observed that the ratio of EBL and BOK are decreases
in the FY 2008/09 and it increases in the next two FY and decreases in last year. The
highest and lowest ratio of EBL is 13.26 % and 11.04 % in the FY 2007/08 and 2008/09
respectively. Similarly, the highest and lowest ratio of BOK is 15.70% and 10.88% in the
FY 2007/08 and 2008/09 respectively. The average ratio of both banks is 12.29% and
12.67% of EBL and BOK respectively.
4.1.3.2 Return on Total Assets Ratio
It measures the productivity of the assets as well as the relationship between the net
profit and assets. It provides the overall efficiency of the firm. It is computed by
dividing net profit by total assets which is shown below table.
 Table No.4.15
Return on Total Asset Ratio (In Rs. 00,000)
Bank Everest Bank Bank of Kathmandu
FY
Net Profit Total Ratio in % Net Profit Total Ratio in
Assets Assets %
2007/08 4,512 271,493 1.66 3,615 177,219 2.04
2008/09 6,387 369,169 1.73 4,617 204,960 2.25
2009/10 8,318 413,828 2.00 5,093 233,962 2.18
2010/11 7,347 462,362 1.59 6,052 247,578 2.44
2011/12 15,580 558,131 2.79 6,077 288,820 2.10
Average 1.96 2.20
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table no. 4.15, it is observed that the ratio of EBL increases in the two FY
up to 2009/10 and it decreases in the next FY and it again increases in last FY. The
highest and lowest ratio of EBL is 1.59% and 2.79% in the FY 2011/12 and 2010/11
respectively. Similarly, the highest and lowest ratio of BOK is 2.44 % and 2.04 % in the
FY 2010/11 and 2007/08 respectively.
The average ratio of both banks is 1.96% and 2.20% of EBL and BOK respectively.

4.1.3.3 Earning Per Share

It measures the available profit to be equity shareholders on per share basis. It represents
what the owners are theoretically entitled to receive from the bank. It is calculated
dividing by net profit by No. of shareholders outstanding which is presented as below the
table no. 4.1
 Table No.4.16
Earnings Per Share
F.Y EPS( EBL) in Rs. EPS(BOK) in Rs.
2007/08 45.60 27.97
2008/09 54.22 35.65
2009/10 62.77 44.67
2010/11 78.41 59.93
2011/12 91.82 67.92
Average 66.56 47.23
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table no. 4.16, it is observed that the ratio of EBL is fluctuating trend.
The highest and lowest ratio of EBL is 66.56% and 45.60% in the FY 2011/12 and
2007/08 respectively. Similarly, the highest and lowest ratio of BOK is 67.92% and
27.97% in the FY 2011/12 and 2007/08 respectively. The average ratio of both banks is
91.82 % and 45.23% of EBL and BOK respectively.
4.1. 3.4 Net Profit to Total Deposit Ratio
Net Profit to Total Deposit ratio measures the profit earning capacity by utilizing
available source. Return will be higher if the bank’s deposit is well managed and
efficiently utilized.

Table No.4.17
Net Profit to Total Deposit Ratio (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
Net Profit Total Ratio in % Net Total Ratio in
 Deposit Profit Deposit %
2007/08 4,512 239,763 1.88 3,615 158,337 2.28
2008/09 6,387 333,230 1.92 4,617 180,840 2.55
2009/10 8,318 369,323 2.25 5,092 203,158 2.51
2010/11 7,347 411,280 1.79 6,052 210,184 2.88
2011/12 15,580 500,061 3.12 6,077 249,915 2.43
Average 2.19 2.53
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above Table, it is state that Net Profit to total deposit of EBL & BOK of the
study period. It refers that the ratio of Net Profit to total deposit throughout study period
i.e. F.Y. 2007/08 to 2011/12 of both Banks. Total deposits of both banks are increasing
trends throughout the study period. The ratio of net profit to total deposit was around 1.79
to 3.12 percentages throughout the study period. The average ratio was 2.19 & 2.53 of
EBL & Bok respectively. From the above analysis, we can say that EBL has maximum
utilized its deposits than BOK.
4.1.3. 5 Net Profit to Total Investment Ratio
Net profit to total investment ratio measures the earning capacity of a commercial bank
on its deposit mobilized.
Table No.4.18
Net Profit to Total Investment Ratio (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
Net Profit Total Ratio in % Net Total Ratio
Investment Profit Investment in %
2007/08 4,512 50,596 8.92 3,615 32,041 11.28
2008/09 6,387 59,485 10.74 4,617 27,836 16.59
2009/10 8,318 50,083 16.61 5,093 32,692 15.58
2010/11 7,347 77,440 9.49 6,052 42,866 14.19
2011/12 15,580 78,636 19.81 6,077 52,467 11.58
Average 13.11 13.83
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table, it is state that the ratio of net profit and total investment of EBL &
BOK from 2007/08 to 2011/12. It refers that the total earning through total investment.
The trends of investment of EBL was increased from FY 2007/08 to 2009/10 and then
again decreased next FY and again increased in the last FY. The trends of investment of
BOK was increased in one year and again decreased in the last FY .The average ratio of
net profit to total investment, BOK had greater than EBL i.e. 13.83 & 13.11 respectively.
4.1.3.6 Risk Analysis
Table No.4.20
Return on Equity (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
RU  R  R2 RU  R  R2
2007/08 21.82 6.9696 19.99 0.7396
2008/09 16.07 9.7621 1.79 363.2836
2009/10 15.37 14.5161 14.18 44.4889
2010/11 21.11 3.7249 19.59 1.5876
2011/12 22.19 9.0601 19.35 2.25
Total 134.28 48.6476 145.98 967.8157
Average 19.18 6.9496 20.85 138.26
S.D. 3 2.64 2.9 11.76
C.V 0.35 0.56
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12
From the above calculation, C.V. of EBL is lower than BOK. Lower C.V. indicates better
performance.

Table No.4.21
Return on Total Assets (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
RU (R-R)2 RU (R-R)2
2007/08 1.34 0.0025 0.99 0.0196
2008/09 1.29 0 0.15 0.9604
2009/10 1.17 0.0144 1.10 0.009
2010/11 1.49 0.04 1.34 0.0441
2011/12 1.45 0.0256 1.41 0.0784
Total 9.05 0.125 7.94 1.3419
Average 1.29 0.0178 1.13 0.1917
S.D. 0 0.13 0 0.44
C.V 0.10 0.39
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above calculation, C.V. of EBL is lower than BOK. Lower C.V. indicates better
performance.

4.1.3.7 Capital Adequacy Ratio

This ratio measures to analyze the sufficient amount of capital fund to total deposit,
total assets and deposit utilization of the bank that which is shown as under.

4.1.3.8 Shareholders Fund to Total Deposit Ratio

Banks need to maintain a sufficient amount of total assets as capital fund or
shareholders fund. It is measured with the sufficiency of the former against the later
which is shown as below.

Table No.4.22
Shareholders Fund to Total Deposit Ratio (In Rs.00, 000)
 Bank Everest Bank Bank of Kathmandu
FY
Shareholders Total Ratio Shareholders Total Ratio
Fund Deposit in % Fund Deposit in %
2007/08 31,948 239,763 13.32 12,722 158,337 8.03
2008/09 53,094 333,230 15.93 25,021 180,840 13.83
2009/10 61,287 369,323 16.59 32,913 203,158 16.20
2010/11 68,036 411,280 16.54 37,071 210,184 17.64
2011/12 76,965 500,061 15.39 46,072 249,915 18.44
Average 15.56 14.83
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table, it is observed that the ratios of both banks are fluctuating trend.
The highest and lowest ratio of EBL is 16.59% and 13.32% in the FY 2009/10 and
2007/08 respectively. Similarly, the highest and lowest ratio of BOK is 18.44% and
8.03% in the 2011/12 and 2007/08 respectively.

The average ratio of both banks is 15.56% and 14.83% of EBL and BOK respectively
which shows that capital adequacy position of EBL is better than BOK.

4.1.3.9 Shareholders Fund to Total Assets Ratio

 Banks need to maintain a sufficient amount of total assets as capital fund or
shareholders fund. It is measured with the sufficiency of the former against the later
which is shown as below.
Table No.4.23
Shareholders Fund to Total Assets Ratio (In Rs.00, 000)
Bank Everest Bank Bank of Kathmandu
FY
Shareholders Total Ratio in % Shareholders Total Ratio
Fund Assets Fund Assets in %
2007/08 31,948 271,493 11.77 12,722 177,220 7.18
2008/09 53,094 369,168 14.38 25,021 204,960 12.21
2009/10 61,287 413,828 14.81 32,913 233,962 14.07
2010/11 68,036 462,362 14.72 37,071 247,578 14.97
2011/12 76,965 558,131 13.79 46,072 288,820 15.95
Average 13.89 12.88
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table, it is observed that the ratio of BOK is fluctuating trend. The
highest and lowest ratio of BOK is 15.95% and 7.18% in the FY 2011/12 and 2007/08
respectively. Similarly, the highest and lowest ratio of EBL is 14.81% and 11.77% in the
2009/10 and 2007/08 respectively. It is also fluctuating trend.
The average ratio of both banks is 13.89% and 12.88% of EBL and BOK respectively
which shows that capital adequacy position of EBL is better than BOK.
Trend analysis of deposit utilization position & projection for next 3 years
This heading find out the trend of deposit utilization of EBL & BOK under seven years
study period and it projects the next three year`s trend with comparatively. A commercial
bank may grant loan and advances and investment some of the funds in government
securities and share debentures of other companies to utilize deposit. Here, ratio between
deposit and loan and advances as well as ratio between deposit and total investments in
forecasted for next three years. The projections are based on the following assumptions.
 Other things will remain unchanged.
 The projection will be right when the limitation of test square method is carried
out.
 The bank will run in present position.
 The economy will remain in the percent stage.
 Nepal Rastra Bank will not change its guideline to commercial banks.
Trend analysis of Loan and advances to total deposit ratio
The heading analysis the trend of loan and advances to total deposit ratio of EBL and
BOK with comparatively less than seven years study period and projects the trend of next
three years. The following table describes the trend values of loan and advances to total
deposit ratio of EBL in comparison to BOK for 10 years.
Table No. 4.24
Trend values of loan and advances to total deposit ratio of EBL and BOK (2007-
2017)

years EBL BOK

2007/08 71.23 74.12
2008/09 71.99 73.28
2009/10 72.75 72.44
2010/11 73.51 71.6
2011/12 74.27 70.76
2013/14 75.03 69.92
2015/16 75.79 69.08
2016/17 76.55 68.24
Source:- www.nepalstock.com

Trend line of loan and advances to total deposit ratio of EBL and BOK
The above table shows the trend values of loan and advances to total deposit ratio of EBL
in comparison to BOK from 2007/08 to 2016/17. The ratio of loan and advances to total
deposit are increasing trend of EBL and decreasing trend of BOK. The value of BOK in
year 2016/17 are 68.24, which is lowest value under 8 year`s period, The value of EBL in
year 2007/08 are 71.23, which is less than EBL trend values. EBL have the highest value
is 76.55.
The above analysis tables conclude that the BOK deposit utilization position in relation to
loan and advances to total deposit ratio is proportionately not better than EBL ratios.

Trend analysis of total investment to total deposit ratio

This heading analysis the trend of total investment to total deposit ratio of EBL and BOK
with comparatively under seven year`s study period and projects the trend of next three
year`s. The following table describes the trend values of total investment to total deposit
ratio of EBL in comparison BOK for ten years.
(Calculations are as Appendix A)

Table No. 4.25

Trend values of total investment to total deposit ratio of EBL and BOK (2008-2018)

years EBL BOK

2007/08 24 10.53
2008/09 26.52 16.96
2009/10 29.04 21.39
2010/11 31.56 26.82
2011/12 34.08 32.25
2013/14 37.68
36.6
 2015/16 39.12 43.11
2016/17 41.64 48.54
2017/18 44.16 53.97
Source:- www.nepalstock.com

Trend values of total investment to total deposit ratio of EBL and BOK

The above comparative table shows the trend of EBL in comparison to BOK of total
investment to total deposit. The ratio of EBL and BOK are increasing trend. Other things
remaining the same, the ratio of total investment to total deposits of EBL in year 2007/08
will be 36.68, which is lowest under the study period. Similarly in case of BOK the ratio
will be 49.4 in the year 2007/08, which is highest under the study period. In conclusion it
can say that BOK seems more successful than EBL to utilize its deposit in investment.
4.1.4 Deposit Utilization of EBL and BOK
It measures the collection of deposit and the efficient utilization of the deposit ratio. It
shows the efficiency of performance and reliability of the bank. Bank has to pay interests
on deposit and also to pay dividends to their shareholders. So, earning more and more
interest through deposit utilization in the productive investment opportunities relating to
industries, commerce, foreign trade, tourism, service business etc. will ultimately
contribute to national economy. Thus, collection of deposit and utilization of the same
can be regarded as two side of a coin. The deposit utilization of both banks is shown as
below.

4.1.4.1 Deposit Utilization of EBL

Table No.4.26
Deposit Utilization of EBL (In Rs.00, 000)
Bank Loans & Growth % Total Growth % Deposit
FY Adv. Index Change Deposit Index Change Utilization
2007/08 183,391 1.00 239,763 1.00 70.03
2008/09 238,847 1.66 66.33 333,230 1.57 56.88 74.25
2009/10 275,564 2.20 32.40 369,323 2.35 49.62 65.71
2010/11 310,577 2.89 31.36 411,280 2.80 19.50 72.23
2011/12 359,110 3.60 24.31 500,061 3.44 22.47 73.32
Average 38.06 71.08
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12
From the above table, it is observed that loans & advances and total deposit of EBL are
increasing each year. On the other hand, the highest and lowest deposit utilization of EBL
is 74.25% and 65.71% in the FY 2008/09 and 2009/10 respectively. The deposit
utilization of EBL is fluctuating throughout the study period and average deposit
utilization ratio is 71.08%.

4.1.4.2 Deposit Utilization of BOK

Table No.4.27
Deposit Utilization of BOK (In Rs.00,000)
FY Loan and Growth % Total Growth % Deposit
Adv. Index Change Deposit Index Change Utilization
2007/08 124,626 1.00 158,337 1.00 72.65
2008/09 146,473 1.66 65.70 180,840 1.64 63.62 73.58
2009/10 166,650 2.28 37.85 203,160 2.23 36.41 74.36
2010/11 174,682 2.48 8.40 210,184 2.23 -0.01 80.61
2011/12 188,140 2.44 -1.54 249,914 2.41 7.82 73.62
Average 74.96
Source: Annual Reports of EBL and BOKL from FY 2007/08 to 2011/12

From the above table no.4.21, it is observed that loans & advances and total deposit
of BOK are increasing each year. The highest and lowest deposit utilization of EBL is
80.61% and 72.65% in the FY 2010/11 and 2007/08 respectively. The average deposit
utilization ratio is 74.96%.
Relationship of profitability position of Banks with their total deposits and total
investments.
(Calculation is shown in appendix 'C'.)

Let, A= Net Profit

B= Total Deposits
C = Total Investments

For Everest Bank Limited

The correlation between A and B is 0.99, which is less than perfectly positive correlation.
It means if deposits increased by 100%, then the net profit will be increased by 99%.
From this result, we can say that, EBL has utilized its deposits with optimum.
The correlation between A and C is 0.92, which is less than perfectly positive correlation.
It means if Investments increased by 100%, then the net profit will be increased by 92%.
From this result, we can say that, EBL has utilized its Investments with satisfactory.

For Bank of Kathmandu

The correlation between A and B is 0.73, which is less than perfectly positive correlation.
It means if deposits increased by 100%, then the net profit will be increased by 73%.
From this result, we can say that, BOK has utilized its deposits with satisfactory.

The correlation between A and C is 0.89, which is less than perfectly positive correlation.
It means if investments increased by 100%, then the net profit will be increased by 89%.
From this result, we can say that, BOK has utilized its investments with satisfactory.

4.2 Major Findings

From this thesis writing, there are some major information findings that are directly
related to the objectives of the study which are mentioned as below:
1. The mean liquidity ratio of EBL is slightly lower than BOK. It means EBL has
maintained higher liquidity and lower risk in comparison to BOK. The ratio of
EBL is highly variable than BOK.
2. The mean ratio of cash and bank balance to total deposit of EBL is higher than of
BOK. It states that liquidity position of EBL is average in this regard. And the
ratio of EBL is fewer consistencies than BOK.
3. The mean ratio of loans and advances to current asset of EBL is shows BOK.
The ratio of EBL is highly variable than BOK. It indicates that liquidity position
of EBL is fewer consistencies.
4. The mean ratio of loans and advances to total deposit of EBL is higher than that
of BOK. The ratio of EBL seems to be more variable than BOK.
5. The mean ratio of total investment to total deposit of EBL is higher than that of
BOK. The ratio of EBL is highly variable than that of BOK.
6. The mean ratio loans and advances to total working fund of EBL is slightly lower
than BOK. It states that position of EBL is average in comparison to BOK. The
ratio of EBL is highly variable than BOK.
7. Comparing the average ratio of interest income to total income of both banks,
EBL is higher than the BOK which means EBL has greater of dependency on
funds based activities than BOK.
8. Comparing average ratio of both banks about the loan and advance to total
assets, BOK seems to have better position than EBL.
9. The mean ratio of return on loans and advances is higher than BOK. It has
maintained average ratio as compared with BOK. The variability of ratio of
EBL is comparatively higher than BOK. It shows EBL inconsistency in return.
10. The mean ratio of return on total working fund of EBL is higher than that of
BOK. The variability of ratio of EBL is highly variable than BOK.
11. The mean credit ratio of EBL is lower than BOK. The ratio of EBL is more
variable than BOK.
12. The mean liquidity risk ratio of EBL is highest of all. The liquidity risk ratio of
EBL is less variable than BOK.
13. The mean capital risk ratio of EBL is highest of all. The ratio of EBL is highly
variable than BOK, which indicates that variability of EBL is more
heterogamous than that of BOK.
14. Growth in deposit of EBL is higher than that of BOK. EBL has maintained
growth ratio of 36.14% whereas BOK has 24.54%. It means successfulness of
EBL to collect greater deposit in comparison to BOK is better year by year.
15. The growth ratio of loan and advances HBL is higher than BOK. It is 88.29%
for 37.77% for EBL & 24.95 for BOK.
16. The growth in investment of BOK is better than that of EBL. It indicates that
BOK is more successful in investing.
17. The growth in net profit of EBL is better than BOKs. IT is 38.98% for EBL,
16.58% for BOK.
18. From the above analysis it can be concluded that EBL has maintained high
growth ratio in total deposit, loan and advances and in total investment. Lastly
in the case of growth rate in net profit is slightly better than BOK. Though it is
 not successful to make enough investment we must say that the bank is
successful in increasing its source of funds and its mobilizations.
19. The correlation between net profit and total deposits of EBL is 0.99, which is
less than perfectly positive correlation. It means if deposits increased by 100%,
then the net profit will be increased by 99%. From this result, we can say that,
EBL has utilized its deposits with optimum.
20. The correlation between net profit and total Investments EBL is 0.92, which is
less than perfectly positive correlation. It means if Investments increased by
100%, then the net profit will be increased by 92%. From this result, we can say
that, EBL has utilized its Investments with satisfactory.
21. The correlation between net profit and total deposits of BOK is 0.73, which is
less than perfectly positive correlation. It means if deposits increased by 100%,
then the net profit will be increased by 73%. From this result, we can say that,
BOK has utilized its deposits with satisfactory.
22. The correlation between net profit and total Investments of BOK is 0.89, which
is less than perfectly positive correlation. It means if investments increased by
100%, then the net profit will be increased by 89%. From this result, we can say
that, BOK has utilized its investments with satisfactory.
 CHAPTER - V

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary
In order to carry out this study, data has been obtained from secondary sources. The
analysis is performed with the help of financial tools and statistical tools. The analysis
is associated with comparison and interpretation. Under financial analysis, various
financial ratios related to the investment function of CBs are analyzed, such as
liquidity ratio, profitability ratio, asset management ratio, risk ratio and growth ratios.

In order to obtain the main purpose of this study, it has been classified into different
sections. This section of the study deals with a brief explanation of what we did
throughout this study and the procedures that we applied for. Summary of the study
focuses mainly on short description of contents of the study to specify the study at a
glance. This study is organized into five different sections which are as follows:
 First chapter of the study deals with introduction of EBL, BOK along with their
historical background and existing position. It also includes statement of problem,
objectives and limitation of the study.

Second chapter focuses on research methodology. It consists of research design,

source of data, collection of data, presentation of data and various statistical as well as
financial tools. Research methodology is the whole of procedures which assists the
study in performing better and systematic way.

Third chapter of the study encompasses review of previous study and relevant
literature in the field of investment policy and also consists the study of journals and
annual reports. Review of literature, saves unnecessary wastage of time and efforts by
providing information regarding previous research work.

Forth chapter of the study includes collection, presentation, tabulation and analysis of
data by applying statistical as well as financial tools to convey the meaningful
conclusion. To have better conclusion and precision in analysis reliable source of data
becomes essential. On the other hand statistical as well as financial tool convey us
useful massage and assists in decision making. Tabulation. Collection, presentation &
editing assist us to build a framework for further analysis in accordance to nature of
data.

Fifth chapter of the study deals to the summary, conclusion and recommendation of
the study. Summary is the brief presentation of whole study which focuses study at a
glance. Main theme of the study is sketched out by the conclusion. Recommendation
is the suggestive part. Which provides direction to follow to the relevant
organization?

5.2 Conclusions
It was already stated that this study is based upon secondary data. Reliability of
analysis and conclusion depends upon accuracy of data. Statistical as well as financial
tools are applied for the study. From the analysis we obtain the following results.
It reveals that liquidity position of BOK is relatively high than that of EBL.
1. Cash and Bank balances to total deposit ratio reveals higher ratios for BOK
than EBL. BOK average ratio of Cash and Bank balance (including money at
call or short notice) to Deposit (Excluding Fixed Deposit) ratio is higher than
EBL.
2. The average ratio of BOK of Cash and Bank balance (excluding money at call
or short notice) to Deposit (Excluding Fixed Deposit) ratio is lower than EBL.
The higher ratio indicates better liquidity position.
3. Similarly, the fixed deposit to total deposit ratio of EBL indicates that EBL can
mobilize more resources on productive and long-term investment than BOK.
4. Other side, the ratio of saving deposit to total deposit, EBL is increasing trend
and also the average ratio of this bank higher than BOK which means EBL has
better liquidity position than BOK,
5. Cash and Bank balance(including money at call or short notice) to Deposit
(Excluding Fixed Deposit) ratio shows that higher ratios of EBL that indicates
the higher ability of the bank to meet anticipated call on current, saving and
other short-term deposit.
6. Through the NRB to total deposit ratio, EBL has higher deposit with NRB than
BOK which seems EBL to be more sincere than BOK.
7. BOK has maintained high ratio, in terms of loans advances to total deposit
ratio. So, BOK has more efficient in mobilizing the deposit in income
generating assets.
8. Because of the higher ratio of investment to total deposit of EBL, EBL has
invested it deposit more efficiently than BOK.
9. BOK is better because it has utilized higher amount of deposits for loans
advances. It can be seen clearly from the analysis.
10. Through income to total income ratio, it seems that EBL has greater degree of
dependency on fund based activities than BOK.
11. EBL has greater interest expenses than BOK in comparison to total expenses
which means EBL utilize more debt than BOK in its capital structure.
 12. The average ratio of long term debt to shareholders fund of EBL has more than
BOK which means EBL has more proportion of long term debt in shareholders
total fund.
13. Similarly, the average ratio of total debt to shareholders fund ratio, EBL is
higher than BOK which means BOK is more at risk and the claims of creditors
are higher than owners.
14. From average return on equity, BOK average is higher than EBL which means
BOK is more powerful in mobilizing their equity capital than EBL.
15. The profitability of financial resources of EBL invested in the bank’s assets and
average earning per share is higher than BOK which means the profitability
position of EBL is better than BOK.
16. -The average ratio of capital adequacy position shown by shareholders fund to
total deposit ratio of EBL is higher than BOK.
17. The average ratio of shareholders fund to total asset ratio of EBL is higher than
BOK which indicates that EBL maintains more percentage amount of total
assets as shareholders fund.
18. The average ratio of deposit utilization ratio of BOK is higher than EBL which
indicates that BOK is more active in creating investment opportunities and
enhancing business activities than EBL.
19. Since there is a high degree of positive relationship between loan and advance
and total deposit in both banks. They are increasing their deposit to invest
resources on more productive sectors and earn more benefits.

5.4 Recommendations

Bank plays the vital roles to eliminate the economic backwardness of the country.
There are many banks existing in Nepal, among them, EBL and BOK are also
contributing a lot for the economic development of nation. We can get a clear
financial condition of EBL and BOK from above studies and presentation. And it is
realized that they still need some improvement to provide best service and to face
very worse situation. Therefore, some valuable suggestions and recommendations are
present through the basis of findings, presentation and analysis of data and
 conclusions to overcome weakness and inefficiencies and to improve present
financial performance and position of the both banks.

The following recommendations are prescribed on the basis of data analysis and
major findings of the study.

1. Due to the establishment of several banks, financial companies etc, both bonks are
facing lot of competition. Therefore, both banks should emphasis on modern
technology development and efficient manpower development. They should be more
market oriented; services oriented and offer a complete range of financial service to
the customers.

2. EBL is itself a much stronger in modern information technology however bank is less
informative to its clients. Bank is not providing sufficient information about the
services and facilities. In order to overcome this problem, EBL is strongly
recommended to provide information about its services, facilities in printed, audio
and visual form.

3. EBL is maintaining more amount as money at call than BOK that’s why EBL has
more amount of total income generating assets than BOK. In such situation, EBL is
recommended to decrease its amount of money at call by increasing loans and
advances for improving their respective assets management as well as liquidity
positions. Whereas BOK is recommended to increase its money at call reducing its
non-earning assets.

4. In present condition of less investment opportunity, EBL can select education as its
potential investment sector. Analysis of trend of total investment to total deposit ratio
also reflects about its less investment as it is in decreasing trend. But a research is
must for this purpose which can effectively be performed by establishing research and
development department.

5. EBL is recommended to increase its cash and bank balance for improving liquidity
position whereas BOK should provide incentives for customers of fixed deposit.
6. As the capital structure position is widely fluctuating, both banks should follow a
constant financial strategy. Besides, they should maintain their capital structure
position more favorable by considering cost of debt financing and the extent of
control desired.

7. The average rate of interest income to total income of BOK is lower than EBL. So,
BOK is recommended to concentrate on investment activities. It should mobilize
more percentage of deposit by investing in government and non-government’s
securities. And other hand, BOK should utilize more assets by providing loans and
advances.

8. EBL has greater interest expenses than BOK in comparison to total expenses which
means EBL utilize more debt than BOK in its capital structure. But both banks spend
more than 50% on interest expenses and remaining on operational expenses. So, both
banks are recommended to reduce using costly sources of funds and concentrate on
using more money on operational expenses.

9. In the side of capital adequacy position of both banks are not satisfactory. So, both
banks are recommended to raise their amount of shareholders fund for maintaining
proper capital adequacy position.

10. In order to preserve the banking and saving habit of the lower level people of the
country, EBL is suggested not to be surrounded and limited with the interest and
status of big clients. Reduction in the minimum required balance and extension of its
branches towards deprived sector of the kingdom is must for boosting up the lower
level people.

11. As private sector it cannot keep its eyes close to the profit, however not only being a
profit oriented organization some contribution for the enlistment of the conditions of
people of lower level will also be appreciable.

12. Before mobilizing funds, both banks are recommended to collect a large variety of
deposit through schemes like cumulative deposit scheme, price bonds scheme, gift
cheque, house building deposit scheme, direct finance housing scheme, educational
loan scheme, vehicle loan scheme and many others.
13. In regard to investment on government securities it has been revealed that both banks
have not given much priority in to invest in government securities as compared to
other banks. Hence it is recommended for EBL and BOK to invest money in the
government securities, as it is risk free.

14. It is good to invest more on share and debentures as it encourages financial and
economic development of the country. To get success CBs must mobilize their funds
in different sector such as to purchase shares and debentures of other financial and
non-financial companies out of total working fund. EBL has invested it's more of the
funds (total investment to total deposit ratio) in comparison to BOK. But the
percentage to investment on shares and debentures is very nominal. So EBL is
recommended to invest more of its funds in shares and debentures of different
companies.

15. The investment policy of EBL is good in every respect as studied above but the
consistency in the above investment sector should be in equilibrium state. It is found
that at times, bank focuses much of its attention to one sector leaving other sector
untouched. So it is recommended to touch all the sectors and balance it effectively so
as to have the optimal performance of the bank.

16. Branches exiting in some limited areas will not be able to boots up its comparing of
deposit mobilization and credit disbursement as desired. HMG/N has also encouraged
the CBs to expand the banking services in rural areas and communities without
making unfavorable impact on profit. Therefore EBL is recommended to open now
branches at certain places every year after making feasibility studies. Before making a
choice for opening a branch, saving and business potentiality of the areas should be
studied well. This will be very helpful to the bank in tapping the resource of different
places.

17. One of the main objectives to operate CBs of Nepal is to boo foreign investment.
However EBL does not seem to be successful in this aspect. Therefore both banks are
recommended attract for investment in Nepal by means of their wide international
banking networks.
18. As a bank of private, EBL cannot keep its eye closed from the profit motive. It should
be careful in increasing profit in real sense to maintain the confidence of
shareholders, depositors and customers. EBL profitability position is not so good as
compared to BOK. So EBL is recommended to utilize its risky assets and
shareholders fund to gain higher profit margin. Similarly it should reduce its expenses
and should try to collect cheaper fund being more profitable.

19. Loan default in CBs is a result of various factors such as political influence, lack of
necessary skills of project appraisal, improper collateral valuation, irregular
supervision and lack of entrepreneurship attitude. Political and administrative factors
are highly prevailing in Nepalese investment environment. CBs should take this
function with purely business attitude. The project oriented approach has to be
encouraged in lending business of the bank in which security is not necessary, risk is
high but the project is important from the point of view of national economy. The
profit should be allowed to make them capable to generate their own funds and to
repay loans timely. The chance of loan in the project-oriented approach can thus be
minimized.

20. The CBs may experience many difficulties in recovering the loans and their large
amount of loan is being blocked as non-performing assets. Therefore there is a need
to work out a suitable mechanism through which the overdue loan can be realized
within time. For this purpose special act named “loan recovery act” should be
enacted.

21. To get success in competitive banking environment depositor’s money must be

utilized as loans and advances. The largest item of the bank in the asset side is loan
and advances. If it is neglected, then it could be the main cause of liquidity crisis in
the bank and one of the main reasons for bank failure. It has been found from the
study that EBL loan and advances to total deposit ratio is higher than that of BOK but
its stability is not consistent than that of other banks. To overcome this situation EBL
is strongly recommended to follow liberal lending policy and invest more and more
percentage of total deposit in loan and advances and similarly maintain more stability
on the investment policy.
22. By implementing conceptual skill and knowledge bank should develop lending plans
and programs keeping in view the legal economic and social as well political
environment. The plan should be drafted to the management personnel in the staff
meeting and lending targets should be fixed on the basis of data analysis. Finally
better performance through efficient internal as well as external management will
ensure the effectiveness of banks' lending policy.

23. The relationship of net profit with total deposits and total investments of BOK are
less than EBL. So, it is recommended to BOK to optimum utilization of deposits by
searching investment opportunities with high rate of returns.

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Appendix-A

Trend values of loan and advances to total deposit ratio of EBL

Year (t) Ratio (y) t-2002 = x x² xy Yc = a+bx
2007/08 65.71 -1 1 -65.71 Yc=71.99+.076X-1= 71.23
2008/09 72.23 0 0 0 Yc=71.99+.076X0=71.99
2009/10 73.32 1 1 73.32 Yc=71.99+.076X1=72.75
2010/11 72.97 2 4 145.94 Yc=71.99+.076X 2=73.51
2011/12 75.45 3 9 226.35 Yc=71.99+.076X3=74.27
Total 503.96 0 28 21.31

The equation of the straight line is, yc =a+bx

Where,
a =∑y / n = 503.96/7 = 71.99
b ==∑xy / ∑x² = 21.31/28 = 0 .76

Trend values of loan and advances to total deposit ratio for next three years

years t-2002 = x Yc = a+bx

 2012/13 4 Yc=71.99+.076X4=75.03
2013/14 5 Yc=71.99+.076X5=75.79
2014/15 6 Yc=71.99+.076X6=76.55

Appendix-B

1. Cash and Bank Balance (Including M/C) to Total Deposits

S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12

i) EBL
Cash and Bank Balance 82,299 94,469 109,150 104,899 170,099
Total Deposit 239,762 333,229 369,323 411,279 500,061
Ratio in % 34.30 28.30 29.60 25.50 34.00
ii) BOK
Cash and Bank Balance 53,674 56,506 45,518 54,237 57,087
Total Deposit 158,337 180,839 203,158 210,184 249,914
Ratio in % 33.90 31.20 22.40 25.80 30.00

2. Cash and Bank Balance (excluding M/C) to Current Deposit Ratio

S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Cash and Bank Balance 8,229 9,446 10,915 10,489 17,009
Current Deposit 8,314 10,304 12,796 13,915 17,611
Ratio in % 98.99 91.68 85.30 75.38 96.59
ii) BOK
Cash and Bank Balance 5,367 5,650 4,552 5,424 7,509
Current Deposit 6,031 8,444 13,595 16,042 16,844
Ratio in % 88.99 66.92 33.49 33.81 44.58

3. Fixed Deposit to Total Deposits Ratio

S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Fixed Deposit 108,983 117,315 147,953 172,197 241,617
Total Deposit 239,762 333,229 369,323 411,279 500,061
Ratio in % 45.52 35.23 40.21 41.81 48.33
ii) BOK
Fixed Deposit 73,893 89,719 71,404 83,100 101,644
Total Deposit 158,337 188,839 203,158 210,184 249,914
Ratio in % 46.71 49.62 35.17 39.52 40.61
4. Saving Deposit to Total Deposits Ratio
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Saving Deposit 53,841 87,354 105,580 135,306 155,068
Total Deposit 239,762 333,229 369,323 411,279 500,061
Ratio in % 22.45 26.21 28.58 32.89 31.00s
ii) BOK
Saving Deposit 35,489 42,500 56,685 65,738 69,474
Total Deposit 158,337 180,839 203,158 210,184 249,914
Ratio in % 22.41 23.50 27.90 31.27 27.79

5. NRB Balance to Total Deposits Ratio

S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
NRB Balance 10,809 47,872 56,251 47,063 81,598
Total Deposit 239,762 333,229 369,323 411,279 500,061
Ratio in % 4.50 14.36 15.23 11.44 16.31
ii) BOK
NRB Balance 60,605 63,241 68,758 64,169 69,708
Total Deposit 158,337 180,839 203,158 210,184 249,915
Ratio in % 3.82 7.32 3.38 3.05 7.88
6. Loans and Advances to Total Deposits
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Loan and Advance 183,390 238,486 275,563 310,576 359,109
Total Deposit 239,763 333,229 369,323 411,279 500,061
Ratio in % 76.48 71.67 74.61 75.51 71.81
ii) BOK
Loan and Advance 124,626 146,473 166,649 174,682 188,139
Total Deposit 158,337 180,839 203,158 210,184 249,915
Ratio in % 78.70 80.99 82.02 83.10 75.28
7. Total Investment to Total Deposits
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Investment 50,596 59,485 50,083 77,439 78,636
Total Deposit 239,763 333,229 369,323 411,279 500,061
Ratio in % 21.10 17.85 13.56 18.83 15.73
ii) BOK
Investment 32,041 27,836 32,692 42,866 52,467
Total Deposit 158,337 180,839 203,158 210,185 249,915
Ratio in % 20.24 15.39 16.09 20.39 20.99

8. Loans and Advances to Total Assets

S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Loan and Advance 183,391 238,847 275,564 310,577 359,109
Total Assets 271,493 369,169 413,828 462,362 558,133
Ratio in % 67.55 64.70 66.59 67.17 64.34
ii) BOK
Loan and Advance 124,627 146,473 166,641 174,682 188,139
Total Assets 177,219 204,960 233,962 247,578 288,820
Ratio in % 70.32 71.46 71.23 70.56 65.14
9. Interest Income to Total Income
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Interest Income 15,487 21,869 31,025 43,310 59,599
Total Income 22,099 38,449 45,179 55,929 69,697
Ratio in % 79.12 84.36 81.16 82.95 82.03
ii) BOK
Interest Income 10,342 13,478 18,709 23,868 26,209
Total Income 18,629 32,148 47,426 63,832 85,353
Ratio in % 83.66 80.10 81.88 82.82 78.09
10. Interest Expenses to Total Expenses
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Interest Expenses 6,326 10,128 15,728 25,359 28,733
Total Expenses 10,524 21,918 37,517 49,859 58,927
Ratio in % 60.10 46.21 41.92 50.86 48.76
ii) BOK
Interest Expenses 4,175 5,631 9,029 12,188 14,845
Total Expenses 7,286 9,899 19,966 25,869 39,499
Ratio in % 57.80 54.86 45.22 47.11 37.58
11. Long term Debt to Shareholders Fund
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Long term Debt 42,846 47,116 47,947 48,980 54,039
Shareholders Fund 5,194 7,309 8,128 8,803 9,696
Ratio in % 715.28 510.76 456.05 425.99 442.30
ii) BOK
Long term Debt 40,485 39,589 39,909 42,767 48,788
Shareholders Fund 5,272 7,202 7,791 8,507 9,207
Ratio in % 626.07 376.57 343.79 350.35 399.44

12. Total Debt to Shareholders Fund

S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Total Debt 41,480 52,150 68,993 80,763 94,394
Shareholders Fund 5,194 7,309 8,128 8,803 9,696
Ratio in % 1533 1144 1214 1312 1393
ii) BOK
Total Debt 49,428 65,011 82,811 78,365 88,657
Shareholders Fund 5,272 7,202 7,791 8,502 9,207
Ratio in % 1919 1121 1185 1359 1201

13. Total Debt to Total Assets

S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Total Debt 68,993 80,763 94,394 109,283 127,225
Total Assets 50,058 59,485 69,085 78,841 96,187
Ratio in % 93.88 91.86 92.39 92.92 90.93
ii) BOK
Total Debt 82,811 78,365 88,657 108,456 107,134
Total Assets 86,083 83,566 94,448 114,963 118,571
Ratio in % 95.05 91.82 92.22 93.15 89.39
14. Return on Equity
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Net Profit 689 807 944 1,093 1,272
Shareholders Fund 5,194 7,309 8,128 8,803 9,696
Ratio in % 13.26 11.04 11.61 12.41 13.11
ii) BOK
Net Profit 828 784 887 1,084 1,071
Shareholders Fund 5,272 7,202 7,791 8,507 9,207
Ratio in % 15.70 10.88 11.38 12.74 12.63
15. Return on Total Asset
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Net Profit 4,512 6,387 8,318 7,347 15,580
Total Assets 271,493 369,169 413,828 462,362 558,131
Ratio in % 1.66 1.73 2.00 1.59 2.79
ii) BOK
Net Profit 3,615 4,617 5,093 6,052 6,077
Total Assets 177,219 204,960 233,962 247,578 288,820
Ratio in % 2.04 2.25 2.18 2.44 2.10
16. Net Profit to Total Deposit
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Net Profit 4,512 6,387 8,318 7,347 15,580
Total Deposit 239,763 333,230 369,323 411,280 500,061
Ratio in % 1.88 1.92 2.25 1.79 3.12
ii) BOK
Net Profit 3,615 4,617 5,092 6,052 6,007
Total Deposit 158,337 180,840 230,158 210,184 249,915
Ratio in % 2.28 2.55 2.51 2.88 2.43

17. Net Profit to Total Investment

S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Net Profit 4,512 6,387 8,318 7,347 15,580
Investment 50,596 59,485 50,083 77,440 78,636
Ratio in % 8.92 10.74 16.61 9.49 19.81
ii) BOK
Net Profit 3,615 4,617 5,093 6,052 6,077
Investment 32,041 27,836 32,692 42,866 52,467
Ratio in % 11.28 16.59 15.58 14.19 11.58
18. Shareholders Fund to Total Deposit
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Shareholders Fund 31,948 53,094 61,287 68,036 76,965
Total Deposit 239,763 333,230 369,323 411,280 500,061
Ratio in % 13.32 15.93 16.59 16.54 15.39
ii) BOK
Shareholders Fund 12,722 25,021 32,913 37,071 46,072
Total Deposit 158,337 180,840 203,158 210,184 249,915
Ratio in % 8.30 13.83 16.20 17.64 18.44
19. Shareholders Fund to Total Assets
S.N Name of JVBs 2007/08 2008/09 2009/10 2010/11 2011/12
i) EBL
Shareholders Fund 31,948 53,094 61,287 68,036 76,965
Total Assets 271,493 369,168 413,828 462,362 558,131
Ratio in % 11.77 14.38 14.81 14.72 14.72
ii) BOK
Shareholders Fund 12,722 25,021 32,913 37,071 46,072
Total Assets 177,220 204,960 233,962 247,578 288,820
Ratio in % 7.18 12.21 14.07 14.97 15.95

Appendix-C

1. Correlation AB, Cov AB, A, B, & C Calculated as Follows

Let, A= Net Profit
B= Total Deposits
 C= Total Investments

A. Bank of Kathmandu

A 

 A A  2


1229630
 419.12
N 5

B 

 BB  2


2680278447
 19567.75
N 5

C 

 C C  2


712112718 .3
 10086.15
N 5

Cov, AB =
 
 RA - R A R B - R B  
71767983
 5966854.71
N 5

Cov, AC =
 
 RA - R A R C - R C  
23892105
 3413157.86
N 5

Cov AB 5966854.71
 AB    0.73
A x B 419.12 x 19567.75

Cov AC 3413157.86
 AC    0.81
A x C 419.12 x 1086.15

B. Everest Bank Ltd.

A 

 A A  2


1642414.86
 484.39
N 5
B 

 BB  2


4829312299
 26265.98
N 5

C 

 C C  2


474975914.5
 8237.34
N 5

Cov, AB =
 
 RA - R A R B - R B  
88193660.24
 12599094.32
N 5

Cov, AC =
 
 RA - R A R C - R C  
25746698.7
 3678099.81
N 5

Cov AB 12599094.32
 AB    0.99
A x B 484.39 x 26265.98

Cov AC 3678099.81
 AC    0.92
A x C 484.39 x 8237.39